No systemic risk yet from bitcoin, says Sebi chief

Ajay Tyagi said there should not be any regulatory oversights on blockchain technology saying this is a useful technology that should be encouraged

Capital markets regulator Securities and Exchange Board of India (Sebi) feels cryptocurrencies, fast gaining popularity, don't pose a systemic risk for Indian markets at present but what is unfolding needs watching.

Speaking at a CII Financial Markets Summit, Ajay Tyagi, chairman of Sebi, said: "Bitcoin does not pose a systemic risk right now but the area can't be ignored. The ministries of finance and information technology are looking into it, in consultation with the Reserve Bank of India (RBI)."

Bitcoin and other virtual currencies are catching the attention of investors, thanks to a meteoric rise in their prices this year. There are no regulations for investors to deal in these new-age currencies.

Tyagi also said Sebi was considering an overhaul of the consent mechanism, used by alleged wrongdoers to settle disputes. "We are revisiting the settlement norms and have started rewriting certain regulations, to make these simpler," he said.

Experts say easing of the consent settlement norms will help on the huge backlog of cases pending with the markets regulator. Currently, insider trading and takeover code related violations are kept out of the consent settlement route. Going ahead, the regulator might allow any type settlement through the consent route, experts said.

Further, said Tyagi, thet regulator needs to balance investor protection and punitive action to promote ease of doing business. “We are trying to totally revamp the enforcement part….we should not take cases upon ourselves which we can't handle," he explained. He said they'd go after violations based on merit.

On corporate governance, he said they were examining all the recommendations in the experts committee report in this regard. “We will take a view after consulting with the ministry of corporate affairs and other regulatory bodies. There is no question of contradiction with the parent Companies Act,” he said.

Tyagi also touched upon issues with the central Know Your Customer (KYC) concept, announced in 2014-15. Tyagi said a simpler method could be based on one's Permanent Account Number (for income tax) and the biometric Aadhaar identity. If those two match, it would be very difficult to say anything else is required. 

He said blockchain technology, a digital ledger used to track the ownership of bitcoin, had potential to be used in the financial markets. “Blockchain is a technology everyone will use. It has no regulatory oversight and that is something which needs to be encouraged. We are also encouraging use of blockchain and studying various aspects of it,” he said.

The government is yet to classify whether bitcoin is a currency or commodity. Tyagi said Sebi would have to regulate bitcoin if these get traded as commodity derivatives. Earlier this year, the finance ministry constituted a committee to examine the regulatory and legal framework on the issue. Tyagi is on this panel. 

According to a Reuters report, the digital currency market, including bitcoin, has swelled from $17 billion at the start of January to well over $600 bn. This has led to concerns over what the fallout could be if the bubble were to burst. Bitcoin reportedly had set a record high of $19,666 on Sunday on the Luxembourg-based Bitstamp exchange, its prices having surged more than 10-fold this year. 

However, there are very few avenues to use bitcoin in India. The trading volume could be Rs 200-250 crore every month. The Reserve Bank has time and again issued a cautionary note about the potential financial, operational, legal, customer protection and security risks to users, holders and traders of virtual currencies.