New Delhi: India’s virtual digital asset (VDA) sector could be moving toward a more structured regulatory framework after the Parliamentary Standing Committee on Finance recommended establishing a self-regulatory organisation (SRO) under the supervision of a designated regulator.
The recommendation came in the committee’s 36th report on the proposed Securities Markets Code Bill, 2025, which seeks to replace three major existing securities laws with a unified legal framework for India’s securities market.
While the report primarily focuses on reforms to securities-market legislation, its observations on VDAs could have broader implications for India’s evolving crypto regulatory landscape.
Parliamentary Panel Highlights Regulatory Gap
The committee’s recommendation emerged during its examination of collective investment schemes and whether the definition of an investment scheme could potentially cover arrangements involving virtual digital assets.
The issue becomes particularly relevant as traditional securities such as shares and bonds can increasingly be represented in the form of digital tokens. Investment structures built around such tokenised assets can, in certain circumstances, resemble conventional investment schemes, particularly when funds are pooled from multiple investors.
However, the legal status of tokenised assets and investment arrangements operating through distributed ledger technology (DLT) has remained an area of uncertainty.
The committee has highlighted the need to address this regulatory ambiguity as digital-asset activity expands in India.
Finance Ministry Clarifies Current VDA Position
In its response to the committee, the Ministry of Finance stated that VDAs are currently regulated primarily through anti-money laundering (AML) and taxation laws.
Whether an arrangement involving a VDA would qualify as an investment scheme under the proposed Securities Markets Code would depend on whether it possesses the characteristics specified in the legal definition of an investment scheme.
The ministry also clarified an important principle: the definition of a security under the proposed code is technology-neutral.
In practical terms, an asset does not automatically become a security simply because it is issued, represented or operated using blockchain or another digital technology.
Similarly, if an underlying asset does not qualify as a security under applicable law, converting it into a digital token would not, by itself, bring it within the scope of the Securities Markets Code.
Global Regulators Look Beyond Technology
The committee’s report also examined regulatory approaches adopted in major jurisdictions, including the United States, United Kingdom, Singapore and the European Union.
These jurisdictions generally consider the economic characteristics and function of an asset, rather than relying solely on the technology used to create or distribute it, when determining its legal classification.
An asset that performs functions similar to a security may therefore be regulated as a security, regardless of whether it exists in traditional or tokenised form.
At the same time, several major markets have been developing dedicated regulatory frameworks for digital assets that do not fall within conventional financial-market legislation.
This international experience could offer a potential reference point as India considers its own long-term approach to VDAs.
Proposed SRO Could Provide Interim Oversight
The committee acknowledged that India’s VDA ecosystem continues to operate amid regulatory uncertainty. As trading activity, investment and participation increase, uncertainty can affect businesses, regulators and, most importantly, investors.
Against this backdrop, the committee has recommended creating an SRO under the oversight of a designated regulator until a dedicated legal framework for VDAs is established.
An industry-led SRO could establish baseline standards for market participants during this interim period. These could include stronger governance practices, greater transparency, investor-protection measures and compliance with a defined code of conduct.
Operating under statutory regulatory supervision, such a framework could encourage responsible business practices while strengthening compliance across the digital-asset ecosystem.
No Immediate Change for Crypto Investors
The committee’s recommendations do not immediately change the regulatory obligations of Indian crypto investors or businesses, as the proposals are advisory and are not legally binding at this stage.
However, they provide an important indication of how India’s VDA policy could evolve.
The recommendation also reflects a growing recognition that taxation and anti-money-laundering requirements alone may not be sufficient to address all issues related to market conduct, investor protection, transparency and consumer safeguards as participation in the sector grows.
India’s Crypto Regulation Enters a Potential New Phase
For India’s crypto industry, the committee’s recommendation could represent an important step toward institutionalising governance around virtual digital assets.
The proposed SRO model does not amount to a comprehensive VDA law, but it could serve as an interim regulatory bridge while policymakers work toward a dedicated framework.
The broader message from the parliamentary panel is significant: as India’s digital-asset ecosystem matures, policymakers appear increasingly focused on moving beyond taxation and AML compliance toward a framework that also addresses investor protection, market integrity, transparency and responsible conduct.
For the crypto industry, the next major question will be how the government and designated regulator translate these recommendations into an operational framework and, eventually, whether India adopts a dedicated statutory regime for VDAs.
manojsharma76us@yahoo.com