The Parliamentary Standing Committee on Finance's recent Securities Markets Code Report has identified a significant regulatory gap in India's approach to digital assets. According to the report, the exclusion of Virtual Digital Assets (VDAs) from the existing securities framework represents a regulatory gap but not necessarily a deliberate policy choice. The Committee acknowledges that the framework simply hasn't caught up with the market as digital assets become increasingly important parts of the financial system. As reported by the Committee, regulatory ambiguity rarely protects investors, more often leaving them without meaningful safeguards that are standard in other financial markets. The gap today is not simply one of legal definitions - it is a gap between how markets function and how regulation currently views them, creating an urgent need for practical regulatory solutions.
The absence of dedicated regulatory framework creates substantial risks for Indian crypto investors. As reported by the Parliamentary Standing Committee, millions of Indians own or trade digital assets yet there are no dedicated market conduct standards, disclosure requirements or grievance redressal mechanisms designed specifically for this asset class. When fraud, manipulation or operational failures occur, investors have limited avenues for protection, leaving them without meaningful safeguards that are standard in other financial markets. The uncertainty also affects the broader ecosystem, as responsible businesses operate without regulatory clarity, institutional participants remain cautious, and innovation slows because long-term investment depends on predictable rules. The risks associated with crypto do not disappear simply because regulation is absent - they become harder to supervise, harder to mitigate, and ultimately more costly for everyone involved. The Committee's assessment suggests that regulatory ambiguity is itself a policy risk that deserves immediate attention.
India's cautious regulatory approach contrasts sharply with international standards. According to the Committee's findings, Japan has brought crypto assets under its securities framework, the United States applies established securities principles including the Howey Test, Singapore regulates qualifying digital assets under its Securities and Futures Act, the United Kingdom has introduced dedicated crypto regulations, while the European Union's Markets in Crypto-Assets (MiCA) framework provides comprehensive rules. These jurisdictions established guardrails first and continued refining regulation as markets evolved, demonstrating that perfect laws aren't necessary for meaningful regulatory progress. The Committee highlights that none of these jurisdictions waited for the perfect law before taking action - they established guardrails first and continued refining regulation as the market evolved, with progress becoming an ongoing process rather than a one-time legislative event.
The Committee has recommended a practical solution to address the regulatory gap through an interim Self-Regulatory Organisation (SRO) framework operating under appropriate regulator oversight. As reported in the Securities Markets Code Report, this approach would establish baseline market standards without prejudging the shape of future legislation while providing mechanisms to improve governance immediately. The Committee emphasizes that building a comprehensive regulatory regime is a long-term exercise, and protecting investors cannot wait for every legislative question to be resolved. An SRO-led framework can establish baseline market standards without prejudging the shape of future legislation, providing a mechanism to improve governance today while allowing policymakers the flexibility to develop a more comprehensive framework over time. Most importantly, it creates accountability where little currently exists, allowing India to choose between immediate action and comprehensive regulation while both can happen together. An interim, SRO-led framework would protect investors, encourage responsible innovation and demonstrate that India is prepared to regulate emerging financial technologies with the same balance and pragmatism it has applied to other parts of its financial system.
The Committee emphasizes the importance of technology-neutral regulation that governs the economic function of an asset rather than the technology that powers it. According to the report, Virtual Digital Assets do not always fit neatly into traditional definitions of securities or derivatives, yet they are increasingly bought, sold and held as financial assets. This disconnect between market function and regulatory view requires immediate attention, as millions of Indians treat digital assets as investments while India's regulatory architecture has not fully adapted to reflect this shift. The Committee acknowledges an important reality that millions of Indians treat digital assets as investments, institutions around the world increasingly view them as part of diversified portfolios, yet India's regulatory architecture has not fully adapted to this shift. A well-designed interim framework can strengthen investor protection, improve market conduct and provide regulatory clarity while policymakers continue developing a long-term legislative approach. The Committee's support for technology-neutral regulation represents one of its strongest recommendations, ensuring that India's approach to digital assets reflects their growing importance in modern finance.
