India’s Finance Committee Proposes SRO Framework for Crypto Regulation

The Indian Parliament's Standing Committee on Finance has formally recommended the implementation of a temporary regulatory mechanism for the domestic cryptocurrency market. This proposal suggests utilizing recognized Self-Regulatory Organizations (SROs) to oversee Virtual Digital Assets (VDAs) while a permanent legal framework is finalized. The initiative aims to mitigate escalating risks associated with operational failures, custodial safety, and fraudulent activities that currently threaten millions of retail participants within the Indian ecosystem.

Supervision and Regulatory Standards

Under the proposed structure, these SROs would not act independently but would operate under the direct supervision of the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (SEBI). The primary objective is to enforce a standardized code of conduct across all service providers. This includes:

• Standardized token disclosure protocols to ensure transparency for new listings.
• Mandatory segregation of customer funds from corporate operational assets.
• Regular audits of exchange reserves to verify solvency.
• Establishment of formalized user complaint handling channels for dispute resolution.

By shifting immediate oversight to SROs, the government aims to create a flexible environment that can adapt to rapid technological shifts in the blockchain space without waiting for lengthy legislative cycles.

Addressing Macroeconomic and Security Risks

The committee’s report highlights that the current lack of a clear legal framework poses significant threats beyond investor protection. There are growing concerns regarding cross-border capital flows and the potential for stablecoin dollarization, which could impact the stability of the Indian Rupee. Furthermore, the SROs will be tasked with ensuring that platforms comply with foreign exchange management laws and anti-tax evasion measures.

The absence of a regulatory perimeter exposes the financial system to systemic vulnerabilities, necessitating an interim oversight body to manage market integrity.

The proposed framework represents a significant step for India, which has previously maintained a cautious stance toward the Web3 and cryptocurrency sector. By integrating SROs into the supervisory hierarchy, the Finance Committee seeks a balance between fostering innovation and maintaining strict financial discipline to prevent violations of existing fiscal regulations.