SSB warn of crypto threats, urging immediate regulatory action

New Delhi, 05 February 2025

Virtual Digital Assets (VDAs) have revolutionized global finance with their decentralization, programmability, and seamless transactions. However, these innovations come with substantial risks that have been repeatedly highlighted by global Standard Setting Bodies (SSBs) like the IMF, the Financial Stability Board (FSB), and the International Organization of Securities Commissions (IOSCO). The rapid rise of VDAs has resulted in extreme market volatility, speculative trading, and limited liquidity, making investors vulnerable to sharp price swings that can erode wealth in an instant. But it’s not just individual investors at risk—the growing connection between VDAs and traditional financial systems presents a more significant danger. A major downturn in crypto markets could trigger instability in financial institutions, potentially causing systemic disruptions across banks and the broader economy.

Adding to these concerns are security vulnerabilities such as cyberattacks, governance failures, and flaws in technology, including bugs in smart contracts. Furthermore, the growing dominance of USD-backed stablecoins raises alarms about the erosion of monetary sovereignty, potentially weakening local currencies and undermining the control central banks have over economic policy. What makes these risks even more urgent is the rampant fraud, scams, and lack of transparency in the crypto space. Retail investors remain highly susceptible to exploitation due to a lack of consumer protection. Fraudulent schemes like BitConnect, GainBitcoin, Dekado, and CoinEGG have already siphoned billions from unsuspecting investors, while reputable platforms have also fallen victim to manipulation, as seen in numerous Twitter-based scams and phishing traps.

The global Standard Setting Bodies (SSBs) have made it clear: regulation is necessary to protect investors and prevent further damage to financial stability. These organizations have already presented solutions and frameworks, leaving the ball firmly in the government’s court. With global regulators like the IMF and FSB highlighting these risks, India’s delay in adopting a regulatory framework is no longer an option.

In light of these developments, the Government of India is revisiting its cryptocurrency policy. Ajay Seth, Secretary of the Department of Economic Affairs (DEA), recently revealed that the government had prepared a discussion paper in collaboration with the Reserve Bank of India (RBI). However, the paper is now being reassessed due to shifts in the stance of several countries regarding crypto assets—especially stablecoins and their use in cross-border transactions. While India’s G20 presidency in 2023 witnessed a relatively stable global regulatory landscape for crypto, growing concerns over the risks posed by stablecoins and the increasing efforts by some countries to adopt crypto for international payments have made the regulatory debate more complex.

Around the world, SSBs have already begun addressing these concerns with concrete actions. In 2023, the IMF and the FSB jointly released a paper outlining a roadmap for crypto-asset regulation, emphasizing the importance of coordinated action to address systemic risks. The FSB has conducted surveys to assess the status of its global regulatory framework, with further reviews planned for 2025. The focus has been on ensuring that emerging markets and developing economies (EMDEs) are prepared to manage the challenges posed by cross-border stablecoin arrangements. In late 2023, IOSCO finalized its policy recommendations for crypto and digital asset markets, including guidance on Decentralized Finance (DeFi), and is assessing the implementation of these regulations in 2025, with a full evaluation planned for 2026. Additionally, the Basel Committee on Banking Supervision (BCBS) has updated standards for banks’ exposure to crypto-assets, with disclosure requirements expected to be enforced by January 2026 to ensure greater financial stability.

In response to these global developments, many countries are already working on frameworks that include clear classifications for VDAs, sovereign currency-backed stablecoins, and stronger oversight for VDA service providers. These measures aim to reduce risks, ensure financial stability, and prevent exploitation. India cannot afford to ignore the risks highlighted by these global bodies. With the regulatory solutions already outlined, it is time for the Indian government to act. The frameworks provided by these global regulators serve as a template that India should adapt, ensuring a clear regulatory structure that balances innovation with the necessary safeguards.

The government must urgently implement a regulatory framework that forces VDA platforms to adopt robust cybersecurity measures, conduct regular audits, and develop contingency plans for disruptions. Additionally, regulations should mandate transparency and consumer protection mechanisms to guard against scams and fraud, while ensuring that the industry maintains sufficient reserves to prevent market manipulation and panic selling.

By acting decisively now, India can not only safeguard its financial systems but also position itself as a leader in the responsible development of VDAs. The global regulators have already set the stage, and India has the opportunity to leverage these solutions for the country’s benefit. Delay is no longer an option—the time for regulation is now.

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