India’s Parliamentary Finance Committee has proposed a supervised self-regulatory framework for virtual digital assets until a dedicated VDA law is introduced.
New Delhi, India’s virtual digital asset (VDA) sector could be moving toward a more structured regulatory framework after the parliamentary standing committee on finance recommended an interim self-regulatory mechanism for the industry.
The committee recently released its 36th report on the proposed Securities Markets Code Bill, 2025, which seeks to replace three major existing securities-market laws with a unified legal framework. While the report primarily focuses on reforms to India’s securities market regulations, one recommendation has significant implications for the country’s growing VDA ecosystem.
Parliamentary Panel Proposes Interim SRO Framework for VDAs
The committee has suggested establishing a Self-Regulatory Organisation (SRO) for the VDA sector under the supervision of a designated regulator until a dedicated and comprehensive legal framework for virtual digital assets is introduced.
The recommendation emerged during the committee’s examination of collective investment schemes. The panel questioned whether the definition of an investment scheme could potentially apply to arrangements involving virtual digital assets.
The issue has become increasingly relevant as traditional financial assets, including shares and bonds, can now be represented digitally through tokenisation. Investment arrangements involving such tokens may, in certain circumstances, resemble conventional investment schemes, particularly when funds are pooled from multiple investors.
However, the legal status of tokenised assets and investment arrangements operating through Distributed Ledger Technology (DLT) remains an evolving area. The parliamentary committee has highlighted the need for greater regulatory clarity as these technologies become increasingly integrated with financial markets.
Finance Ministry Clarifies Current VDA Regulatory Position
In response to the committee’s questions, the Finance Ministry stated that VDAs are currently subject primarily to anti-money laundering (AML) and taxation laws.
Whether an arrangement involving a VDA would qualify as an investment scheme under the proposed Securities Markets Code would depend on whether the arrangement possesses the characteristics specified in the legal definition of an investment scheme.
The ministry also clarified that the proposed securities framework does not determine whether an asset is a security merely on the basis of the technology used to create or operate it.
In practical terms, an asset that does not qualify as a security under existing legal principles would not automatically become a security simply because it is converted into a digital token or operated using blockchain technology.
This technology-neutral approach is becoming increasingly important as financial markets adopt tokenisation and blockchain-based infrastructure.
Global Regulators Look Beyond Technology
The parliamentary report also examines approaches adopted by major financial jurisdictions, including the United States, United Kingdom, Singapore and the European Union.
In these markets, the regulatory classification of a digital asset generally depends not only on the technology behind it but also on the asset’s economic function, characteristics and how it operates.
An asset that exhibits characteristics of a security may therefore be regulated under securities laws, even if it is issued or traded using blockchain technology.
At the same time, major jurisdictions have been developing dedicated regulatory frameworks for digital assets that fall outside traditional financial-market legislation.
This global trend highlights the challenge facing India: creating rules that protect investors and maintain market integrity without applying traditional securities regulations indiscriminately to every blockchain-based asset.
Regulatory Uncertainty Remains a Major Challenge
India’s VDA ecosystem continues to operate amid regulatory uncertainty. As participation, investment and business activity in the sector expand, the absence of a dedicated legal framework creates challenges for market participants, regulators and investors.
The proposed SRO mechanism could provide an interim layer of governance while policymakers work toward a comprehensive VDA framework.
An industry-led organisation operating under the supervision of a statutory regulator could establish basic standards covering areas such as transparency, governance, investor protection, responsible business practices and a code of conduct.
Such a model could also help improve compliance and encourage more responsible practices across the industry without waiting for the development of an entirely new statutory framework.
No Immediate Change for Crypto Investors
For Indian crypto investors, the committee’s recommendations do not currently create any immediate legal or regulatory change.
The recommendations are advisory in nature and are not, by themselves, legally binding. However, they provide an important indication of how India’s VDA policy could evolve in the coming years.
The recommendation for a supervised SRO suggests that policymakers increasingly recognise the need for institutional governance in a sector that has grown considerably in terms of investor participation and market activity.
India’s Crypto Regulation Could Enter a New Phase
The committee’s recommendations could mark an important step in India’s broader debate over cryptocurrency and VDA regulation.
Taxation and anti-money-laundering rules currently provide important regulatory controls, but they may not address every issue associated with market conduct, consumer protection, transparency, governance and investor safeguards.
A supervised self-regulatory framework could therefore serve as a bridge between the current regulatory landscape and a future dedicated VDA law.
For the Indian crypto market, the key takeaway is that policymakers appear to be moving toward a more structured approach rather than relying solely on taxation and AML provisions. The eventual framework will determine how India balances innovation, investor protection, financial stability and regulatory oversight as the digital asset economy continues to develop.
