The central government has brought the trading of cryptocurrency and digital assets under the ambit of the Prevention of Money Laundering Act through a gazette notification. The move comes even as the legislation to govern the crypto sector is still awaited, and at a time when India, as G20 President, is looking to drive the narrative among global leaders and regulators on the dangers of cryptocurrency.

This means any financial wrongdoing involving crypto assets can now be investigated by the Enforcement Directorate.

In a gazette notification dated March 7, the Finance Ministry's Revenue Department stated that activities related to trading of crypto and digital assets would be covered under the PMLA.

These include exchange between virtual digital assets and fiat currencies, between one or more forms of virtual digital assets, and transfer of virtual digital assets. The activities would also include safekeeping or administration of virtual digital assets or instruments, enabling control over such assets and participation in and provision of financial services related to an issuer's offer and sale of a virtual digital asset.

The definition of ‘virtual assets' would be the same as that in the Income Tax Act, the notification stated. The definition includes cryptocurrencies and non-fungible tokens.

“Crypto transactions continue to lack transparency and the trail is difficult to establish. This move places the responsibility of bringing transparency to crypto trading on the crypto markets,” said Prashant Garg, Partner, technology consulting, EY India.

“The responsibility of maintaining transparency, identity and following regulations is on crypto exchanges. Globally, banks are severing ties with exchanges, putting a strain on exchanges and forcing them to look for alternative models,” Garg said.

The Centre is unwilling to table the bill governing the crypto sector in Parliament till there is a global consensus on regulations.

Last month, at the G20 meeting of Finance Ministers and central bank governors in Bengaluru, IMF Managing Director Kristalina Georgieva backed India's stance on private cryptocurrencies and other digital assets, and said there is a need for a strong push on global regulation for such assets.

“We have to differentiate between central bank digital currencies that are backed by the state and stable coins, and crypto assets that are privately issued. Second, there has to be very strong push for regulation. And third, if regulation fails, if you're slow to do it, then we should not take off the table or banning those assets, because they may create financial stability risk,” she said.

Indian officials in the government and the Reserve Bank of India have argued that while there is a need for strong global regulations for private crypto assets, banning should be an option in certain cases.

Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das had said at the same event that India's position was being endorsed by other nations.

“I am glad to say one thing–there is almost a clear understanding that anything not issued by a central bank is not a currency. And this is a position that India has been taking for a very long time and we are glad that this position is now also being acknowledged by so many different members,” Sitharaman had said.

Das said there was acceptance among the major global economies that crypto assets pose major risks to financial stability, monetary systems, cyber security issues, and to overall financial stability, and need to be looked at. “Going forward, the effort is to develop an international framework, an international architecture to deal with this problem,” Das said.

As G-20 president, India has asked the IMF and the Financial Stability Board to bring out a joint technical paper on the macroeconomic and regulatory aspects of crypto assets. The paper will help formulate a coordinated and comprehensive policy approach to crypto assets. The international organisations are expected to present their joint paper in October.

The central government has brought the trading of cryptocurrency and digital assets under the ambit of the Prevention of Money Laundering Act through a gazette notification. The move comes even as the legislation to govern the crypto sector is still awaited, and at a time when India, as G20 President, is looking to drive the narrative among global leaders and regulators on the dangers of cryptocurrency.

This means any financial wrongdoing involving crypto assets can now be investigated by the Enforcement Directorate.

In a gazette notification dated March 7, the Finance Ministry's Revenue Department stated that activities related to trading of crypto and digital assets would be covered under the PMLA.

These include exchange between virtual digital assets and fiat currencies, between one or more forms of virtual digital assets, and transfer of virtual digital assets. The activities would also include safekeeping or administration of virtual digital assets or instruments, enabling control over such assets and participation in and provision of financial services related to an issuer's offer and sale of a virtual digital asset.

The definition of ‘virtual assets' would be the same as that in the Income Tax Act, the notification stated. The definition includes cryptocurrencies and non-fungible tokens.

“Crypto transactions continue to lack transparency and the trail is difficult to establish. This move places the responsibility of bringing transparency to crypto trading on the crypto markets,” said Prashant Garg, Partner, technology consulting, EY India.

“The responsibility of maintaining transparency, identity and following regulations is on crypto exchanges. Globally, banks are severing ties with exchanges, putting a strain on exchanges and forcing them to look for alternative models,” Garg said.

The Centre is unwilling to table the bill governing the crypto sector in Parliament till there is a global consensus on regulations.

Last month, at the G20 meeting of Finance Ministers and central bank governors in Bengaluru, IMF Managing Director Kristalina Georgieva backed India's stance on private cryptocurrencies and other digital assets, and said there is a need for a strong push on global regulation for such assets.

“We have to differentiate between central bank digital currencies that are backed by the state and stable coins, and crypto assets that are privately issued. Second, there has to be very strong push for regulation. And third, if regulation fails, if you're slow to do it, then we should not take off the table or banning those assets, because they may create financial stability risk,” she said.

Indian officials in the government and the Reserve Bank of India have argued that while there is a need for strong global regulations for private crypto assets, banning should be an option in certain cases.

Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das had said at the same event that India's position was being endorsed by other nations.

“I am glad to say one thing–there is almost a clear understanding that anything not issued by a central bank is not a currency. And this is a position that India has been taking for a very long time and we are glad that this position is now also being acknowledged by so many different members,” Sitharaman had said.

Das said there was acceptance among the major global economies that crypto assets pose major risks to financial stability, monetary systems, cyber security issues, and to overall financial stability, and need to be looked at. “Going forward, the effort is to develop an international framework, an international architecture to deal with this problem,” Das said.

As G-20 president, India has asked the IMF and the Financial Stability Board to bring out a joint technical paper on the macroeconomic and regulatory aspects of crypto assets. The paper will help formulate a coordinated and comprehensive policy approach to crypto assets. The international organisations are expected to present their joint paper in October.