The Reserve Bank of India recently clarified that it neither intends to regulate nor ban crypto-assets. Statements from various other policymakers noted that the government intends to tax unbacked crypto-assets to discourage their usage and not endorse them. Yet, India remains one of the hottest markets for crypto-assets with the highest adoption rates in the world. This highlights the policy problem in front of the regulators and policymakers: how to regulate crypto-assets without regulating them. In other words, how can India ensure accountability and consumer protection in the crypto sector without conferring it with full regulatory legitimacy?
There are many ways in which this problem can be addressed. For instance, China has banned crypto-assets on its mainland but allowed Hong Kong, its special administrative region, to emerge as a hub of investment and innovation in crypto-assets. This allows China to monitor the sector from a strategic distance without granting it regulatory legitimacy. However, India lacks a comparable ‘policy-buffer’, but similar ends can be achieved through institutional measures such as self-regulatory organisations (SROs) that can provide oversight from an arm’s length.
The SRO concept has been utilized globally to create a balance between innovation and oversight. For example, in Japan, the Financial Services Agency has officially recognized the Japan Virtual and Crypto Assets Exchange Association as an SRO for the cryptocurrency sector. The SRO establishes standards for all service providers, conducts audits, disciplines members, and responds to user complaints. In contrast, Taiwan's Virtual Asset Service Act requires all bitcoin market participants to be SRO members. The SRO provides a full operational and ethical framework, including rules for membership governance, token listing, consumer protection, AML/CFT compliance, anti-fraud measures, cybersecurity, and asset segregation. These two examples demonstrate how SROs can ensure market integrity, customer trust, and compliance without direct legislative oversight. It is within such global approaches that India can explore shaping its own crypto policy through structured self-regulation.
In India, there are already effective instances of self-regulation. The Reserve Bank of India and the Securities and Exchange Board of India have formally recognized organizations such as the Association of Mutual Funds in India, Microfinance Institutions Network, Finance Industry Development Council, and Fintech Association of Consumer Empowerment as SROs to promote fair practices, transparency, and governance in the financial sector extending similar treatment to the crypto sector could allow Indian government to supervise crypto enterprises without regulating the entire industry. The Bharat Web3 Association (BWA) has also taken a similar approach, adopting legislation that require strong cybersecurity precautions as well as fair trading practices to promote openness and integrity, among other things. It has made significant efforts to establish independence, transparency, and enforcement capacity. It has taken substantial steps to ensure independence, transparency, and enforcement capabilities. Official recognition from the government and authorities could assist to boost it even more.
What would a crypto specialized regulatory organization actually do?
The recognized crypto SRO in India would:
Establish minimum standards for security, transparency, and operational integrity in the industry.
Establish a baseline code of conduct for all exchanges, custodians, and services provided by members.
Supervise frameworks for token listings, including risk assessments, disclosures, policies for conflicts of interest, and alerts for investors.
Evaluate member's financial statements, security protocols, asset segregation, and regulatory framework audits on a recurring basis.
Establish investor protection policies including grievance or resolution procedures, and appropriate disclosures.
Enforce AML/CFT best practices to ensure all members conform with international standards broadly established by FATF.
Observe trading practices for wash trading, insider trading, price manipulators and abusers of the market.
Certify compliance for members providing confidence to users and regulators through a seal of credibility.
Enforce disciplinary conduct against non-complied members including- but not limited to- monetary sanctions, suspension, and/or termination of membership.
Liaise with the regulators by submitting periodic reports, analysis of emerging risks, and provide relevant market intelligence information.
In this sense, an SRO offers India a ‘policy safety valve’, that is an institutional measure that allows oversight of a sector without conferring it with formal legitimacy. By recognizing a formal SRO, Indian policymakers can supervise crypto, while directly shaping its evolution through structured and accountable self-governance.
