IBJA urges Sebi to regulate digital gold firms as investor concerns rise

The India Bullions & Jewellery Association (IBJA) has asked the Securities and Exchange Board of India (Sebi) to bring digital gold providers under a formal regulatory framework, The Economic Times reported.

 

The development comes weeks after the markets regulator warned investors against investing in digital or e-gold products, stating that such instruments fall outside its regulatory framework and involve significant risks.

 

The bullion, with its plea to come under the regulatory framework, hopes to dispel fears that the consumers are being duped. IBJA's national secretary Surendra Mehta said, "We have been approached by various digital gold companies and they have shown their willingness to be regulated either through Sebi or any other regulator, as suggested by the market watchdog."

 

He further noted that several digital gold products are backed by refiners approved by the Bureau of Indian Standards (BIS) and the National Accreditation Board for Testing and Calibration Laboratories (NABL).

 

What did Sebi say?

 

On November 8, the markets regulator issued the cautionary statement after it observed that some online platforms were promoting 'digital gold' or 'e-gold' products as an easy alternative to investing in physical gold. 

 

In a statement, it said, "In this context, it is informed that such digital gold products are different from Sebi-regulated gold products as they are neither notified as securities nor regulated as commodity derivatives. They operate entirely outside the purview of Sebi."

 

It further added, "Such digital gold products may entail significant risks for investors and may expose investors to counterparty and operational risks."

 

Sebi also clarified that investor protection mechanisms available for regulated securities do not apply to unregulated digital gold schemes.

 

The regulator noted that investors can instead gain exposure to gold through Sebi-regulated products such as Gold Exchange Traded Funds (ETFs) offered by mutual funds, exchange-traded commodity derivatives, and Electronic Gold Receipts traded on stock exchanges.

 

It added that investments in these Sebi-regulated instruments can be made through registered intermediaries and are governed by the regulatory framework prescribed by the regulator.

 

Withdrawals surge from digital gold fintechs

 

Business Standard recently reported that after Sebi's cautionary statement, fintech platforms that offer digital gold witnessed nearly a threefold surge in withdrawals.

 

Citing a fintech company founder, the report said, "Platform users now have clarity that this is an unregulated product. There is no regulator auditing the inventory of physical gold and its purity, which can become a problem."

 

Another industry player flagged concerns over whether companies are complying with full Know-Your-Customer (KYC) requirements and the origins of user funds, noting that customers may be purchasing digital gold without adequate safeguards.