New Delhi: Last week, the Parliamentary Standing Committee on Finance released its 36th Report on the proposed Securities Market Code Bill, 2025. The Securities Market Code proposes to establish a single rulebook for India’s securities market by replacing the three key laws that currently govern Indian securities.
While the Committee’s report primarily examines reforms to India’s securities laws, one recommendation stands out for the virtual digital asset (VDA) sector. The Committee has called for the establishment of self-regulatory organisations (SROs) under the oversight of a designated regulator until a dedicated legal framework is put in place.
This recommendation emerged from the Committee’s examination of collective investment schemes. The Committee raised a crucial question: does the definition of an investment scheme extend to arrangements involving VDAs?
Today, traditional securities, such as a company’s shares or bonds, can be represented as digital tokens. Arrangements for investing in these tokens can often resemble traditional investment schemes. For instance, they may involve the pooling of funds from multiple investors. However, the legal status of arrangements involving tokenised assets or those executed through distributed ledger technology has remained largely unclear. This is an area the Committee sought to clarify.
In its response to the Committee, the Ministry of Finance noted that VDAs are currently regulated only under anti-money laundering and tax laws. Whether VDA-based arrangements qualify as investment schemes under the Code depends entirely on whether such arrangements share the defining characteristics of an investment scheme.
The Ministry also noted that the Code adopts a technology-neutral definition of securities, meaning that the technology used does not affect the legal character of an asset. This provides an important clarification: unless the underlying asset legally qualifies as a security, its digital representation remains outside the scope of the Code, regardless of the technology used.
The report also examines how other jurisdictions treat securities and VDAs. Jurisdictions such as the United States, the United Kingdom, Singapore, and the European Union adopt technologically neutral approaches to defining securities. In essence, if an asset functions like a security, it may be regulated as one. These jurisdictions are also developing dedicated frameworks for digital assets that fall outside traditional financial laws.
The Committee also acknowledged that VDA operations in India continue to exist in a regulatory grey area. As activity in the sector continues to grow, this creates uncertainty for businesses, regulators, and, most importantly, investors.
It is against this backdrop that the Committee recommended the establishment of an SRO under the oversight of a designated regulator until a dedicated legislative framework is developed.
This recommendation recognises that building a comprehensive legal framework will take time. In the interim, an industry-led body such as an SRO could prescribe minimum standards for governance, transparency, investor protection, and compliance with codes of conduct. Such a mechanism could promote responsible practices while supporting compliance under the oversight of a statutory regulator.
The Committee’s recommendations do not immediately change anything for everyday investors, as they are advisory in nature and are not yet legally binding. However, they offer a strong indication of the direction that policy may ultimately take.
With increasing investor activity in the VDA sector, taxation and anti-money laundering laws alone may not be sufficient to address concerns relating to market conduct and consumer protection. The Committee’s recommendation nevertheless reflects a growing recognition that India’s VDA sector has matured to a stage where institutional governance is becoming increasingly necessary.
