Blockchain Technology Transcends Boundaries, Need Global Regulations: RBI Governor

A globally coordinated regulatory approach and inter-regulatory coordination are needed for blockchain technology, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Friday (June 17).

“When it comes to technology, it may transcend regulatory or national boundaries. The most relevant example in this case would be blockchain technology. Different blockchain platforms cannot be limited to a regulator or a nation,” Das said while speaking at Modern BFSI Summit, organised by the Financial Express.

Das also brought up decentralised finance (DeFi) “in which financial applications are processed on a blockchain with limited or no involvement of centralised intermediaries”.

DeFi poses unique challenges to regulators as its anonymity, lack of a centralised governance body, and legal uncertainties can make the traditional approach to regulation ineffective, the governor said.

“There is, therefore, a case for a globally coordinated regulatory approach and inter-regulatory co-ordination to enable comprehensive assessment of such activities and mitigation of their risks,” he added.

The government has already introduced tax on income from virtual digital assets and tax deducted at source (TDS) on cryptocurrency transactions. Cryptocurrencies run on blockchain. As per reports, the government is also looking at introducing taxes for DeFi.

As per a report by Chainalysis, India was on the 6th position in the Global DeFi Index last year. The ranking was based on several metrics such as on-chain DeFi value received, on-chain number of DeFi deposits and on-chain retail DeFi value received.

Earlier in April, Finance Minister Nirmala Sitharaman said that blockchain has the potential to contribute positively to the economy. However, she also said that the technology could be used for money laundering and terror financing activities. 

Blockchain startups are also catching investors’ attention globally. For example, UAE-based VC firm Cypher Capital launched a global $100 Mn blockchain-focused fund in March this year. Moreover, the VC firm set aside 40% of the amount for emerging blockchain and crypto startups in India.

During his address, Das also said that the trend of technology-driven changes in the financial services sector will continue in the future. He said that the players in the financial sector will have to work hard to remain relevant in the ever changing economic environment.

These players need to continuously improve the quality of their governance, rework their business strategies and business models and design products and services with the customer in mind. In addition, they need to ensure operational resilience and risk management, and focus on more efficient products and services, the governor said.

“Technology and innovation per se are neither destructive nor constructive. It is the use cases that present the responsible or irresponsible sides of any particular innovation or technology,” he said.