The Reserve Bank of India (RBI) confirmed on May 31 that banks and other regulated companies cannot cite its 2018 circular on cryptocurrencies because it was set aside by the Supreme Court (SC) in March 2020. The RBI stated that the circular is no longer effective as of the date of the SC ruling and that it cannot be referred to or referenced from.
This clarification comes in the wake of previous investor communications from banks like HDFC and SBI, which highlighted a 2018 circular to warn investors about the “uncertain regulatory landscape” in this industry. Investors were urged to understand the nature of these transactions and to be mindful of the hazards connected with crypto and virtual currencies. Failure to comply, according to the emails sent out by these institutions, could result in the permanent closure of bank accounts and the suspension of credit cards.
What does it imply for the fellow Investors?
One of India’s leading cryptocurrency exchanges, WazirX, applauded the move. It was praised as a promising indication by Nischal Shetty, CEO of Wazir X, who said, “This paper offers a ray of light for the Indian crypto sector.” The Reserve Bank of India’s clarification on this is greatly appreciated. We expect that this circular would inspire banks to improve their compliance departments and give Indian crypto exchanges banking access.”
Given the hazy and ambiguous nature of cryptocurrency regulation in India, most banks have begun to distance themselves from cryptocurrency exchanges such as Coin DCX, WazirX, and others. Paytm recently severed ties with WazirX, making it impossible for many crypto investors to deposit or withdraw funds from their accounts with the payment behemoth.
The anger of the investor was evident, and many complained that it had taken long periods and not been able to deposit funds in a timely fashion, which led them to miss market breaks. Karan Anand, a distressed crypto investor, talked about how important it is for crypto exchanges to improve their deposit process. “You cannot have people waiting for days to be able to buy cryptocurrency, especially when most exchanges claim to be able to do so in a matter of minutes,” he said.
Given the importance of the RBI’s directive for banks, clarification by the RBI comes as a welcome relief to most crypto exchanges. The apex bank’s inability to demonstrate how regulated financial entities will suffer as a result of cryptocurrency operations has long been a source of contention, impeding the smooth growth of crypto-related services in the country.
What’s the takeaway from all this?
Nevertheless, in the circular, a note of caution regarding banks exercising due diligence in cryptocurrency rings is clear. Banks have been asked to comply with applicable provisions, such as laws on KYC (Know-Your-Consumer), AML (Anti-Money Laundering).
“We applaud the RBI’s decision to clarify its position on the old circular, which was overturned by the Supreme Court. I’m hoping the confusion over the same has subsided. We also understand the banks’ concerns about AML (anti-money laundering) policies, and we believe that discussions about them will strengthen the industry and make investors and investments safer.” Sumit Gupta, CEO, and Co-Founder of Coin DCX stated.
According to industry experts, there is now hope for meaningful industry-government engagement on crypto-related policies. According to Sandeep Naliwal, Co-Founder and Chief Operations Officer at Polygon, an Indian blockchain scalability platform, “this is very positive for the ecosystem and it feels like overall consensus within the government and regulatory bodies is against stifling innovation and growth in the Crypto ecosystem in India.”
Polygon recently skyrocketed in popularity after Shark Tank’s Mark Cuban invested in the company. Matic, Polygon’s native token, has skyrocketed in value from $26 million at its inception in 2019 to more than $14 billion in recent times.