SEBI Allows Usage of Blockchain Technology For Security & Covenant Monitoring

Indian market regulator – SEBI – has asked its depositories to use distributed ledger technology, popularly known as blockchain technology to record and monitor the security created as well as monitor covenants of non-convertible securities. In  2020, SEBI had formed a group of SEBI officials, depositories, stock exchange and trustee association of India where it came to a conclusion that depositories need to create and host a system for security and covenant monitoring systems leveraging blockchain technology.

As per SEBI, the system will be used for recording and monitoring of the security created and monitoring of covenants of non-convertible securities. The system will capture the process of creation of security, continuous monitoring of covenants by debenture trustees, credit rating of the non-convertible securities by the credit rating agencies (CRA). As per the circular dated August 13, 2021 SEBI has asked depositories to provide secure login credentials to issuers, CRAs, debenture trustees for recording and verifying requisite information on the system. 

Depositories will also have to bring in place adequate safeguards to protect data on the blockchain system and develop an alert mechanism that needs to be shared to the stakeholders for submission, acceptance and rejection of information and alerts for periodic and event based compliances. The circular stated that in case the value and details of assets recorded are not in line with proposed non-convertible securities issuance, then debenture trustees shall not validate and reject the same on the system. 

Blockchain is a new age technology that first hogged the limelight after Bitcoin gained traction. The technology is now used by several sectors such as healthcare, cyber security, banking, supply chain management. The central government which has been skeptical about the cryptocurrency lately have been showing interest towards adopting blockchain technology.

As per HT report, the government of India has recently said that it has used blockchain technology that is most used by cryptocurrencies, to digitally certify Indian startups. Blockchain technology powered certificate verifying platform has been created by the department for promotion of industry and internal trade (DPIIT). The platform will be able to help the government to disburse INR 10,000 Cr from Funds of Funds for Startups is known to offer incentives to startups as well.

Last month, it was reported that the central government is eyeing to build a blockchain-based platform that would help government departments, PSUs, banks and investors to verify the authenticity of the information submitted by startups. Earlier reports have suggested that the Indian government is looking to create a panel that would come up with the roadmap for regulations and use of blockchain in India.