Cryptocurrency exchanges have welcomed the government's Self-Regulatory Organisation (SRO) proposal as a practical interim solution for regulating virtual digital assets in India. According to The Hindu BusinessLine, crypto exchanges such as CoinDCX and CoinSwitch praised the move as a pragmatic approach to address current realities of the VDA ecosystem. Sumit Gupta, co-founder of CoinDCX, noted that the committee made keen observations validating industry realities, stating that while the proposed Code adopts a technology-neutral definition of securities, most VDAs do not fit neatly into traditional legal definitions of securities or derivatives. Edul Patel, Founder and CEO of Mudrex, emphasized that the proposal correctly identifies the position of VDAs within India's regulatory grey area, highlighting concerns about consumer protections and market conduct norms that leave investors with limited remedies against fraud and market manipulation. Vikram Subburaj, CEO of Giottus.com, explained that the SRO should be seen as a transition mechanism rather than a replacement for formal law, stating it can establish common standards under regulatory oversight while giving regulators direct experience of how the market functions.
A parliamentary panel has urged the government to create a comprehensive regulatory framework for cryptocurrencies, citing investor protection and risks from the current legal vacuum. According to the committee's recommendations for the Securities Markets Code, the government should consider introducing an interim mechanism through recognised self-regulatory organisations (SROs) operating under the oversight of a designated regulator. The committee emphasized that such a framework should prescribe minimum standards of governance, transparency, disclosure, investor protection, grievance redressal, compliance with prescribed codes of conduct and appropriate regulatory oversight to mitigate risks while promoting market discipline and safeguarding investor interests. The Parliamentary Standing Committee on Finance on Thursday released its report on the Securities Markets Code, 2025, which suggested this interim regulatory mechanism for VDAs. The committee has also recommended examining a statutory framework covering cryptocurrencies, non-fungible tokens (NFTs) and decentralised finance (DeFi) tokens, with the SRO expected to function under supervision of the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (SEBI).
India's virtual digital asset (VDA) sector operates under a fragmented regulatory framework that creates significant uncertainty for all stakeholders. According to recent reports, while VDAs are recognized under tax law, subject to anti-money laundering obligations, and monitored by the Financial Intelligence Unit (FIU-IND), the country still lacks a comprehensive law governing the sector. This regulatory gap has resulted in businesses, consumers, and regulators operating without clarity on the legal status and future of the Indian VDA sector. Vikaas M Sachdeva, CEO of BitDelta India, noted that the sector has long operated in an uncertain policy environment, but this recommendation signals a maturing conversation between the sector and policymakers. The committee highlighted that although many categories of VDAs are increasingly traded and invested in as financial assets, tradability on organised platforms and price discovery through market forces are not expressly recognised or regulated under the proposed Code, creating a regulatory grey area that results in uncertainty and exposes investors to heightened risks of fraud, market manipulation, misrepresentation and inadequate grievance redressal.
The committee has emphasized the importance of classifying digital assets based on their underlying economic function, with experts noting that different categories of tokens may require different regulatory treatment. Vikram Subburaj explained that India is not obliged to inherit the binary debate seen elsewhere, where tokens must either be treated as securities or left outside financial law. He added that investment products could fall under securities regulation, payment-like instruments could require a different approach, while trading and custody of issuerless assets may need separate market-conduct rules. The committee has also emphasized that securities laws should remain technology-neutral, meaning tokenised securities issued using blockchain or distributed ledger technology would continue to remain within the ambit of securities regulations. Manhar Garegrat, India Head of Liminal Custody, noted that one of the most notable aspects is the technology-neutrality of the law, providing clarity for blockchain-based use cases. This approach allows for nuanced regulation that recognizes the diverse functions and applications of digital assets in the Indian market.
Industry experts suggest India should adopt a principles-based framework underpinned by an effective Self-Regulatory Organization (SRO). According to reports, a recognised SRO could establish baseline standards on custody, cybersecurity, listing and delisting protocols, consumer protection, grievance redressal, and law enforcement cooperation. Ashish Singhal, Co-founder of CoinSwitch, noted that the recommendation to introduce an interim regulatory mechanism through a recognised SRO, under regulatory oversight, is a pragmatic approach while a comprehensive framework evolves. He emphasized that an SRO-led model could help improve accountability and investor protection while allowing responsible innovation to continue. Snigdhaneel Satpathy, partner at Saraf and Partners, previously noted that SROs act as an interim middle ground while the government prepares to regulate this emerging asset class, advising companies to prioritise grievance redressal mechanisms and recommending segregation of customer assets from company assets, regular disclosures, transparency reports detailing arrangements with custodians, asset liabilities, and regular token-listing standards. This approach would bridge the regulatory gap while the legislative process runs its course, similar to models adopted by Japan, Canada, and South Korea that have developed operational standards more nimbly than legislation alone can.
The committee's recommendations come as part of broader regulatory reforms, with the panel separately preparing a report on the outlook for VDAs that it plans to submit during the monsoon session. Sebi has clarified that VDAs that don't exhibit the defining characteristics of a 'security' or 'derivative' under the Securities Contracts (Regulation) Act, 1956 or the proposed Code may remain outside the scope of the definition of 'securities'. The Finance Ministry indicated that the extent of Sebi's jurisdiction would depend upon whether relevant arrangements satisfy the elements of an 'investment scheme'. The proposed Securities Markets Code 2025 aims to combine the SEBI Act, 1992, the Securities Contracts (Regulation) Act, 1956, and the Depositories Act, 1996 into a single code, with the legislation introduced in Lok Sabha in December 2025. The recent crypto sector growth, accelerated by market performance, has witnessed growing retail participation in these assets, as noted by industry experts. A recognised SRO could improve transparency across crypto platforms by encouraging better compliance standards, disclosures and investor grievance mechanisms, though the proposed framework would not eliminate risks associated with crypto investments, including price volatility, cybersecurity concerns and regulatory uncertainty.
