India’s Approach To Virtual Assets
Context
Indeed, the introduction of new technologies frequently prompts Red Flag Acts of its own. Many such rules have existed throughout history, from the Internet to mobile phones, and have frequently stifled innovation. There are currently efforts to outlaw artificial intelligence and blockchain technologies.
Points to Ponder
- Laws have frequently stifled innovation in the past, from automobiles to mobile phones, and there are currently calls for the restriction of artificial intelligence and blockchain technologies.
- With a recent announcement expanding anti-money laundering legislation to virtual digital asset enterprises and service providers, India is taking a methodical approach to regulating virtual digital assets.
- Platforms that reveal entity information, such as CoinSwitch, must now register with the Financial Intelligence Unit-India, implement know your customer procedures, monitor all transactions, and report suspicious behaviour.
- Standardising such legislation will promote transparency, boost confidence, and give the government more jurisdiction over virtual digital asset transactions in India.
- The International Monetary Fund (IMF) and the Financial Action Task Force (FATF) have issued global recommendations that recognise the role Virtual Asset Service Providers (VASPs) play in regulating and monitoring the virtual digital assets ecosystem.
- The G-20 presidency of India provides an opportunity to develop a global legal framework for virtual digital assets, and India’s leadership and experience are critical in this regard.
- Rethinking the tax classification of virtual digital assets, which is currently an outlier both locally and internationally, might eliminate tax arbitrage, halt capital, consumer, investment, and talent flight, and deflate the grey economy for virtual digital assets.
- A progressive regulatory framework will instill the animal spirit in India’s innovation economy and cement India’s leadership in virtual digital assets.
Virtual Asset Service Providers
- Virtual Asset Service Providers (VASPs) are companies that offer services for the transmission, storage, and management of virtual digital assets.
- Intermediaries, brokers, exchanges, custodians, hedge funds, and even mining pools are examples of VASPs.
- VASPs are crucial in regulating and monitoring the ecosystem of virtual digital assets.
- VASPs are the most effective bridges and eyes for regulators in efficiently implementing anti-money laundering/counter-terrorism financing principles.
- The Financial Action Task Force (FATF) maintains a broad definition of VASPs that encompasses a wide range of companies.
- India recently extended anti-money laundering regulations to virtual digital asset enterprises and service providers, mandating them to register with the Financial Intelligence Unit-India as reporting entities.
- Reporting entity platforms, like as CoinSwitch, are now required to implement know your customer policies, record and monitor all transactions, and report any suspicious behaviour to the Financial Intelligence Unit-India.
- VASPs are critical in building a global regulatory framework for virtual digital assets, which is now being debated in the G-20 finance track.
- Japan and South Korea have already developed a licencing framework for VASPs, while Europe has passed the Markets in Crypto-Assets (MiCA) regulation.
- A proactive regulatory framework for VASPs can assist India build its leadership in virtual digital assets and infuse the animal spirit in the Indian innovation economy.
