The notification, which brings all transactions involving virtual digital assets under the purview of the Prevention of Money Laundering Act (PMLA), is an essential step towards regulating the surge in virtual assets in India. The government has struggled to formulate an appropriate regulatory response to the upsurge in advertisements soliciting investment in virtual assets as well as reports of actual investment. Measures and disclosures by the government indicate that the volume of trade in unregulated virtual assets has grown sizeably in recent years.
The decision to mandatorily bring all trade in virtual digital assets under the PMLA lays the onus of ascertaining the provenance of all activity, including safekeeping, in such assets upon individuals and businesses participating in or facilitating these transactions. This move is necessary to prevent potential criminal misuse of virtual assets, considering the speed and anonymity with which they can be traded worldwide. The intergovernmental Financial Action Task Force (FATF) has continuously flagged this potential and urged for globally coordinated regulatory responses to deal with crypto assets.
While the notification has been interpreted by the crypto assets sector as moves towards regulating rather than proscribing it, the RBI's consistent advocacy for a ban needs to be seriously weighed before any decision is taken on the fate of the long-delayed draft legislation on virtual assets. As India holds the presidency of the G-20, it has been repeatedly stressing the need for a globally coordinated regulatory response to deal with crypto assets.
