Cryptocurrencies Not Included in RBI’s Regulatory Sandbox
The Reserve Bank of India (RBI) has unveiled its regulatory sandbox for the fintech sector. However, it does not cover cryptocurrencies though it includes blockchain technology alongside smart contracts.
RBI introduces its fintech regulatory guidelines
India’s central bank published its regulatory guidance for the fintech sector earlier today. The regulatory sandbox covered a lot of products, services, and technologies. However, cryptocurrencies and other related services are not accepted for testing yet.
According to the RBI, the regulatory framework was put in place following advice from the Fintech working committee it put in place three years ago. The bank pointed out that the regulatory framework captures a well-defined space and duration in which regulators will put in place requisite regulatory guidance to increase efficiency, reduce risks, and opening up new opportunities for consumers.
The RBI also listed the innovative technologies, services, and products that it is currently considering for testing. They include digital KYC, digital ID services, machine learning and its applications, blockchain tech, smart contracts, AI, and money transfer services.
The working group put together by the bank includes its representatives, the Securities and Exchange Board of India (SEBI), the Pension Fund Regulatory and Development Authority, the Insurance Regulatory and Development Authority, some banks and rating companies, the Institute for Development and Research in Banking Technology, and finally the National Payments Corporation of India
Cryptos not yet part of the sandbox
The RBI believes that cryptocurrencies and related services are not however acceptable for testing under the Fintech regulatory sandbox. The bank stated that some companies are not suitable for the guideline if the financial service proposed is similar to those already being offered in the country. However, an exception can be made if the applicants can show that another technology can be used gainfully or similar technique could be applied in a faster and more efficient manner.
Despite these, the report listed some harmful products, services, and technologies it would not be considered for testing. They are cryptos, crypto asset services, crypto investing and trading, and also settling in cryptocurrencies. The list goes further to mention initial coin offerings and any other product and service which the RBI or other government regulators have banned.
RBI’s stance towards crypto is still tough
The Indian apex bank has been against cryptocurrencies over the years, and the omission of cryptos from the sandbox shows that nothing has changed. Six years ago, the RBI warned cryptocurrency users, investors and traders to be careful with the industry due to the potential operational, legal, financial, and security risks experienced in the country.
In February 2017, the bank issued another statement to the public, revealing that it hasn’t granted a license to any crypto company. Thus they should be careful how they deal with entities in the cryptocurrency space. This statement was followed by another one in December 2017, with the bank reiterating its stance regarding the risks involved in dealing with cryptocurrencies like Bitcoin.
However, the apex bank finally took strong regulations against cryptos. On April 5, 2018, it published a statement stating that digital currencies raise concerns in terms of money laundering, consumer protection, market integrity, and more. The bank issued a circular the following day, banning all regulated companies from using cryptocurrencies or providing services to companies and individuals involved with digital currencies.
The ban affected several crypto service providers in the country, making it hard for them to open and manage bank accounts in the country. The ban was enforced in July 2018, but it has met resistance from cryptocurrency market participants. Several of them have filed petitions against the RBI with the Supreme Court to overturn the ban. The Supreme Court announced that it would be hearing the case on July 23, 2019, after adjourning it several times in the past.