New Delhi, India’s virtual digital asset (VDA) sector could be moving closer to a formal regulatory framework after the Parliamentary Standing Committee on Finance recommended that the government examine the need for comprehensive legislation governing digital assets.
The recommendation, made in the Committee’s observations on the Securities Markets Code, 2025, has been welcomed by the digital asset industry as a significant step toward addressing the regulatory gaps surrounding cryptocurrencies and other virtual digital assets in India.
Dilip Chenoy, Chairperson of the Bharat Web3 Association, described the development as an important milestone in India’s evolving approach to digital asset regulation. He said the Committee’s recommendations offer a balanced pathway that seeks to strengthen investor protection while allowing responsible innovation to develop.
Finance Panel Identifies Regulatory Gap for Virtual Digital Assets
The Committee has recognised that the proposed Securities Markets Code follows a technology-neutral definition of securities. However, several categories of virtual digital assets may fall outside this definition because they do not meet the legal characteristics of securities or derivatives.
Despite this distinction, many digital assets are increasingly traded and held as financial assets and display economic characteristics similar to traditional investment products.
This creates a regulatory gap, particularly in areas such as market conduct, transparency, consumer protection, disclosure standards and grievance redressal.
The Committee’s observations could therefore provide an important foundation for determining how India should regulate digital assets that do not fall within existing securities laws.
Existing Crypto Regulations Focus on AML and Tax Compliance
India already imposes significant compliance requirements on the virtual digital asset industry.
Crypto businesses operating within the regulatory perimeter are subject to obligations under the Prevention of Money Laundering Act (PMLA), while digital asset transactions are also covered by provisions of the Income-tax Act.
These measures have strengthened oversight of anti-money laundering, reporting and taxation.
However, the sector still lacks a comprehensive regulatory framework covering areas such as operational standards, market conduct, disclosures, consumer safeguards and dispute resolution.
According to Chenoy, addressing these gaps could play a crucial role in improving investor confidence and supporting the long-term development of India’s digital asset ecosystem.
Self-Regulation Could Become Part of an Interim Framework
One of the more significant recommendations is the possibility of establishing an interim regulatory mechanism through recognised self-regulatory organisations (SROs) operating under the supervision of a designated regulator.
The proposed approach would not amount to self-regulation without government oversight. Instead, it could create a co-regulatory model, where recognised industry organisations operate under standards established and monitored by the appropriate regulatory authority.
Such a framework could introduce greater consistency in areas including governance, transparency, disclosures and investor protection while giving policymakers time to develop a comprehensive statutory regime.
Regulatory Clarity Could Boost India’s Crypto Industry
The recommendation comes at a critical stage for India’s digital asset market.
Regulatory uncertainty can make it difficult for legitimate businesses to plan long-term investments and build compliant operations. A clearly defined framework could instead encourage companies to operate within India while giving investors greater confidence in the market.
For the industry, regulatory clarity could also help distinguish compliant businesses from unregulated or potentially harmful operators.
A structured framework could therefore support responsible innovation, market integrity and consumer protection without restricting the development of blockchain and Web3 technologies.
India’s Global Crypto Role Adds Weight to the Debate
India has become one of the world’s major markets for digital asset adoption and blockchain innovation. The country also played an active role in international discussions around crypto-asset regulation during its G20 Presidency.
The latest Parliamentary Committee recommendations could provide an opportunity for India to build on that international engagement by developing a domestic regulatory model that combines innovation with financial safeguards.
For policymakers, the challenge will be to create rules that protect investors and maintain market integrity while avoiding unnecessary restrictions that could push legitimate digital asset activity outside India’s regulatory perimeter.
What Happens Next?
The Standing Committee’s recommendations do not establish a new crypto regulatory framework by themselves. Instead, they provide a parliamentary basis for further consideration by the government.
The next stage will likely involve examining the appropriate regulatory architecture, determining the role of existing financial regulators and assessing how an interim SRO-based mechanism could operate alongside a future statutory framework.
For India’s crypto industry, however, the direction is significant. The Committee has formally acknowledged the regulatory gap surrounding digital assets and proposed a pathway that combines regulatory oversight with industry participation.
As the government evaluates the recommendations, the key challenge will be to create a future-ready VDA framework that strengthens investor protection, improves market transparency, supports compliant businesses and allows responsible innovation to continue.
For India’s rapidly evolving digital asset ecosystem, the Committee’s recommendations could mark the beginning of a more structured phase of crypto regulation.
