India’s Parliamentary Standing Committee on Finance has urged the central government to establish an interim regulatory mechanism governed by recognized Self-Regulatory Organisations (SROs) to oversee the domestic cryptocurrency and Virtual Digital Asset (VDA) market. In a comprehensive report evaluating national financial laws, the parliamentary panel highlighted the persistent regulatory vacuum surrounding digital assets, warning that an absence of clear statutory rules leaves millions of retail investors exposed to severe operational, custodial, and fraud risks.
Rather than waiting for a complex, multi-year legislative law to be drafted and passed through Parliament, the committee recommended empowering industry-led SROs to enforce immediate, standardized codes of conduct under the direct oversight of established regulators like the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (SEBI).
Self-Regulation to Close the Legal Vacuum
While India currently taxes digital asset gains at a flat 30% rate and enforces anti-money laundering (AML) reporting via the Financial Intelligence Unit (FIU-IND), the core operating environment for crypto exchanges and Web3 platforms remains without formal statutory status. The parliamentary committee emphasized that this regulatory gap creates significant systemic risks.
By establishing officially recognized SROs, the government can immediately deploy binding rules governing consumer protection, platform transparency, and token disclosure standards. These SROs will be tasked with auditing exchange reserves, mandating strict legal segregation between customer funds and corporate balance sheets, and setting up mandatory user grievance redressal channels to prevent insolvency collapses similar to the historic FTX collapse.
Balancing Sovereign Oversight with Financial Integrity
The proposed SRO framework is designed to serve as a bridge between complete non-regulation and a permanent statutory regime. However, the committee noted that self-regulation alone is insufficient to address complex macroeconomic risks. Digital assets inherently present unique challenges regarding cross-border capital flight, stablecoin-driven dollarization, tax evasion, and potential violations of the Foreign Exchange Management Act (FEMA).
To address these concerns, the panel stressed that any interim SRO must operate under the tight supervisory umbrella of the RBI or SEBI. This dual-layer structure ensures that while industry experts manage day-to-day operational guidelines and technical standards, sovereign regulatory authorities maintain strict oversight over national security, monetary policy, and systemic financial stability. The parliamentary panel also clarified why cryptocurrencies were intentionally excluded from the unified Securities Market Code, explaining that VDAs do not possess the legal characteristics of traditional equities, bonds, or debt derivatives. Because digital tokens are issued across global jurisdictions without centralized issuer accountability, treating them standard securities under traditional laws presents legal friction.
However, leaving them completely unregulated creates an unmonitored shadow market. The committee’s recommendation for an SRO-led model provides a specialized legal path designed specifically for decentralized networks. This approach provides Indian crypto businesses with immediate operational clarity, strengthens investor protections, and establishes a structured foundation for future, comprehensive digital asset legislation.
