While reports indicate that India has the highest virtual digital asset (“VDA”) adoption across jurisdictions, we are yet to see any concrete movement on a corresponding regulatory framework to govern the sector and provide legal clarity.
This FIG paper reports on recent global developments in cryptoasset regulation and sets out a wish list of considerations that must form a part of India’s regulatory conversation on VDAs in 2025.
On November 26, 2024, the UK’s Financial Conduct Authority (“FCA”) published a ‘Crypto Roadmap’, outlining its plans and timeline to regulate the crypto asset sector. The FCA aims to address key areas like stablecoin regulations, trading platforms, financial promotions, and consumer protection for its cryptoassets legal framework. Further, consultation/ discussion papers will be published in the coming months for different aspects of digital asset regulation, such as custody, prudential considerations, trading rules, staking, etc. The full regime is expected to take effect in 2026.
In line with the above, on December 17, 2024, the FCA published the ‘Discussion Paper: Regulating cryptoassets: Admissions & Disclosures and Market Abuse Regime for Cryptoassets’ to address risks of market asymmetry, financial crime and insider trading.
Phased implementation of the European Union’s Markets in Crypto Assets Regulation (“MiCA”) has begun for issuers of asset-referenced tokens (ART) and e-money tokens (EMT) on June 30, 2024. MiCA will become applicable to crypto-asset service providers (“CASP”) from December 30, 2024. Stablecoin issuers face stringent reserve mandates, while CASPs must be authorised and comply with anti-money laundering (“AML”)/ combatting financing of terrorism (“CFT”) norms.
The Securities Exchange Commission (SEC) has taken an aggressive stance on cryptoassets, classifying them as ‘securities’, leading to increased scrutiny and enforcement actions against digital assets exchanges and platforms. The recent ongoing lawsuit between the SEC and Ripple Labs over the classification of XRP as a security will have far-reaching implications for the crypto industry.
President elect Donald Trump’s pro-crypto position and executive appointments of industry proponents imply an unprecedented support for cryptoassets in the 119th Congress. We may see a unified approach to crypto policy, which had been fragmented up until now.
The Financial Services Agency, Japan’s financial regulator, proposed a new business category for crypto intermediaries, with light-touch regulation in November 2024. The proposed “cryptocurrency and electronic payment instrument intermediary business” category would apply relaxed rules to crypto brokerage businesses, which would otherwise be required to register as digital assets exchanges that are subject to more stringent regulations for AML/ CFT, customer asset custody, etc. This category ensures gaming companies, telecommunication providers and other fintech companies, which intend to operate virtual assets, are not treated with the same stringency as digital exchanges.
In addition, Japan is working on publishing tax and remittance rules on cryptoassets soon.
In our previous FIG paper, we had discussed learnings from initial interactions with the Financial Intelligence Unit of India’s (“FIU-IND”) VDA regulations. The Department of Economic Affairs was due to publish a consultation paper on the regulatory policy for VDAs. However, on December 16, 2024, the Ministry of Finance (“MoF”) clarified in Parliament, that there is “no timeline anticipated for introduction of comprehensive regulatory guidelines for VDA industry in India”. While the government has been in a wait-and-watch mode, in 2025, the MoF may consider the following:
With Australia, Brazil, Hong Kong, and South Korea in the process of releasing new regulation, governments are acknowledging that regulatory frameworks offer legal clarity and legitimacy to digital assets businesses, which will only grow in importance, driven by global financial tailwinds.
India has a first mover market advantage, owing to its retail adoption. Global businesses are bullish on the country, but tentative because of lack of regulatory clarity. We should not lose out because we are looking for a perfect solution.
Partner (Head – Fintech and FSRP) at Cyril Amarchand Mangaldas. Anu represents Indian and multinational banking, broker-dealer, exchange, asset management, speciality finance, fintech and information/ emerging technology companies on transactional, enforcement and regulatory matters. His transactional practice focus is on public & private…
Partner (Head – Fintech and FSRP) at Cyril Amarchand Mangaldas. Anu represents Indian and multinational banking, broker-dealer, exchange, asset management, speciality finance, fintech and information/ emerging technology companies on transactional, enforcement and regulatory matters. His transactional practice focus is on public & private M&A, capital raising, commercial agreements and activism matters. Anu advises financial services clients on matters before the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Ministry of Finance, Enforcement Directorate and appellate tribunals. He can be reached at anu.tiwari@cyrilshroff.com
Associate in the Financial Services Regulatory Practice at the Mumbai office of Cyril Amarchand Mangaldas. Aditya advises Indian and multinational clients on regulatory advisory, fintech M&A, data privacy, compliance and licensing in the specialty finance, digital payments, virtual assets, and emerging technology sectors.
Associate in the Financial Services Regulatory Practice at the Mumbai office of Cyril Amarchand Mangaldas. Aditya advises Indian and multinational clients on regulatory advisory, fintech M&A, data privacy, compliance and licensing in the specialty finance, digital payments, virtual assets, and emerging technology sectors. He can be reached at aditya.sarkar@cyrilshroff.com.
Associate in the Financial Services Regulatory Practice (FSRP) at the Mumbai office of Cyril Amarchand Mangaldas. Udisha can be reached at udisha.surana@cyrilshroff.com.
