RBI Mentions DeFi, Crypto Regulation in Latest Financial Stability Report
The Reserve Bank of India (RBI) has released its latest Financial Stability Report (FSR), which outlines important developments that have recently taken place in the national and international banking and fintech sectors. The domain of decentralized finance (DeFi) got a brief mention in the RBI’s report, with the central bank discussing the focus of global bodies on developments in the sector. The RBI also touched upon the US’s efforts to regulate the crypto sector.
RBI’s FSR report mentions DeFi technology
In his FSR reportThe RBI recognised that digital financial systems are being embraced globally, leading to the creation of new business models and financial distribution channels.
According to the RBI, advanced technologies such as distributed ledgers (blockchain), cloud computing, artificial intelligence (AI) and machine learning (ML) have significant implications for financial systems across the world.
Regarding DeFi specifically, the report said that global regulators such as the Financial Action Task Force and the International Organization of Securities Commissions (IOSCO) are constantly scrutinizing developments around DeFi. These global financial whistleblowers are concerned that a rapid growth in DeFi could have implications for the broader asset market and subsequently global financial stability.
US Efforts to Regulate the Crypto Sector
The central bank notes that the US government is attempting to create a regulatory framework for digital assets, in the form of the Financial Innovation and Technology for the 21st Century Act (FIT21) legislation. The FIT21 Act is expected to give the US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) the authority to oversee digital assets, venues and entities. According to the RBI, the FIT21 Act is also expected to provide market certainty while providing some form of recognition to digital assets in the country.
The RBI report also discusses the US SEC’s decision to approve trading in exchange traded products (ETPs) for certain cryptocurrencies, such as Bitcoin and Ether ETFs.
On the other hand, the central bank of India has expressed concerns over the rising number of cybercrimes related to the crypto sector at the international level.
“Ransomware crypto payments, business email compromises and data breach costs reached new highs in 2023. The financial sector reported more than 20,000 cyber breaches and digital attacks, resulting in losses of $20 billion over the past 20 years. Furthermore, cyber attacks have been shown to increase during periods of political and economic uncertainty, such as geopolitical tensions, with disruptive consequences,” the report said.
RBI’s stance on crypto in India appears to be unchanged
The RBI has repeatedly said that it prefers a ban on crypto in the country. Since cryptocurrencies allow anonymity in transactions, the central bank is concerned that crypto assets could be misused for illegal activities such as terror financing and money laundering. The crypto sector also gives people more control over their money and removes the need for intermediaries such as banks to process financial transactions, which threatens the monopoly of central banks over their respective financial systems.
However, the DeFi sector was mentioned once in the RBI report and industry members in the country are already hopeful about the future of the fintech sector in India.
“The RBI released its half-yearly Financial Stability Report (FSR) today. There is very little in it about the crypto asset sector, which could be good or bad depending on how you look at it! There is no specific negative commentary on financial stability risks of digital assets, which could mean something or nothing depending on how you look at it,” said R Venkatesh, Head of Public Policy at CoinSwitch, comments on the development.
The latest report seems to confirm that the RBI is not ready to accept cryptocurrencies as legitimate means of payment in the country in the near future.
