India's Parliamentary Standing Committee on Finance has recommended an interim self-regulatory organization for the crypto sector under RBI or SEBI oversight until comprehensive crypto legislation is introduced.
India's Parliamentary Standing Committee on Finance has recommended establishing an interim self-regulatory organization (SRO) to oversee the country's cryptocurrency industry until a dedicated legal framework for digital assets is enacted. The proposal is aimed at addressing the current regulatory gap while strengthening investor protection and improving oversight of the rapidly growing virtual digital asset (VDA) market.
The committee suggested that the SRO should operate under the supervision of an existing financial regulator, such as the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (SEBI), rather than functioning independently. According to the panel, the arrangement would serve as a temporary mechanism while the government develops comprehensive legislation for cryptocurrencies and other virtual digital assets.
A Temporary Solution to India's Crypto Regulatory Gap
India currently taxes cryptocurrency transactions and requires registered exchanges to comply with anti-money laundering rules. However, the country still lacks a dedicated law governing cryptocurrencies, leaving the industry without a comprehensive regulatory framework.
Recognizing this gap, the Standing Committee recommended that the government examine the need for an appropriate statutory framework covering Virtual Digital Assets (VDAs), including cryptocurrencies, non-fungible tokens (NFTs), and decentralized finance (DeFi) tokens. Until such legislation is introduced, the committee believes an industry-led SRO could help establish governance standards and improve accountability.
How the Proposed SRO Would Work
According to the committee's recommendations, the proposed self-regulatory organization would be responsible for developing industry standards while remaining subject to oversight by a designated regulator.
The suggested framework includes responsibilities such as:
- Establishing governance and transparency standards.
- Creating codes of conduct for crypto businesses.
- Strengthening investor protection measures.
- Introducing grievance redressal mechanisms.
- Promoting compliance with anti-money laundering requirements.
- Supporting regulatory reporting and operational best practices.
The committee emphasized that oversight from regulators such as the RBI or SEBI would remain essential because of the unique risks associated with digital assets.
Focus on Investor Protection
One of the committee's key concerns is protecting retail investors participating in India's rapidly expanding crypto market.
The report highlights risks including misuse of customer assets, inadequate custody safeguards, fraud, money laundering, terror financing, tax evasion, and cross-border financial transactions. It also notes that customer funds should be clearly segregated from company assets and subject to regular audits to reduce the risk of misuse by crypto platforms.
Lawmakers believe stronger governance standards could improve consumer confidence while reducing risks during the period before formal legislation is enacted.
Oversight Instead of Full Self-Regulation
Although the proposal involves an industry-led organization, the committee stopped short of recommending complete self-regulation.
Instead, it stressed that the SRO should remain accountable to a central financial regulator because cryptocurrencies involve risks extending beyond traditional financial services.
Industry participants quoted in the report also acknowledged that while an SRO could improve operational standards, sovereign oversight would remain necessary given concerns surrounding financial stability, illicit finance, and international regulatory coordination.
India's Crypto Policy Continues to Evolve
The recommendation follows months of consultations by the Parliamentary Standing Committee on Finance with stakeholders including government agencies, regulators, industry representatives, and accounting bodies.
Earlier this month, the committee heard evidence from the RBI and the Institute of Chartered Accountants of India (ICAI) as part of its broader study on the future of Virtual Digital Assets. Discussions have also included questions around taxation, investor protection, foreign exchange regulations, and the appropriate regulatory model for digital assets.
The proposal also reflects a gradual shift toward exploring practical regulatory solutions rather than leaving the sector in prolonged legal uncertainty.
Potential Role of RBI and SEBI
The committee did not designate a single regulator but suggested that the interim SRO should operate under the supervision of an existing authority.
This aligns with previous discussions in India regarding whether the RBI, SEBI, or a multi-regulator framework should oversee different aspects of the crypto ecosystem. In 2024, Reuters reported that SEBI had expressed openness to supervising parts of the crypto market, while the RBI continued to raise concerns about financial stability risks associated with private digital assets.
What It Means for India's Crypto Industry
If accepted by the government, the proposal could provide the crypto industry with clearer operational guidelines before comprehensive legislation is finalized.
An interim SRO could help exchanges, wallet providers, custodians, and other crypto businesses adopt consistent compliance standards while giving regulators greater visibility into industry practices.
Although the recommendation does not create immediate legal obligations, it signals that policymakers are moving toward a more structured regulatory approach rather than maintaining the current regulatory vacuum.
Conclusion
India's Parliamentary Standing Committee on Finance has taken another significant step toward shaping the country's digital asset framework by recommending an interim self-regulatory organization for the cryptocurrency industry. Operating under the oversight of regulators such as the RBI or SEBI, the proposed SRO would establish governance standards, strengthen investor protection, and improve compliance until Parliament introduces dedicated crypto legislation.
While the proposal is still a recommendation rather than government policy, it reflects growing recognition that India's rapidly expanding crypto market requires clearer rules, stronger oversight, and a regulatory framework capable of supporting innovation while protecting investors.
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