Topic 12 of 22
GS Paper 3 Cryptocurrency and Financial Market Regulation Virtual Digital Assets (VDAs) - Securities Market Code, 2025 and the Self-Regulatory Organisation (SRO) proposal

12 crore. That is roughly the number of Indians trading virtual digital assets today and not one of them is protected by a market regulator. A Parliamentary panel has just admitted why.

| | Source: Parliament of India | Topic 12 of 22

Summary

The Parliamentary Standing Committee on Finance has flagged a "regulatory vacuum" around Virtual Digital Assets (VDAs) in its report on the Securities Market Code, 2025. Since the Code defines securities in a technology-neutral way, VDAs fall outside it entirely. The panel wants an interim framework built through Self-Regulatory Organisations (SROs) until a full law is drafted.

WHY IN NEWS FOR UPSC & STATE PCS

The Committee's report matters because it is the first formal parliamentary acknowledgement that India's roughly 12 crore VDA users are taxed and monitored for money laundering, but have no market regulator overseeing governance, disclosure or grievance redressal - a gap the new Securities Market Code does not close.

Standard News

Taxed but Unwatched: What the SRO Proposal Really Admits

A number like 12 crore usually gets treated as a market opportunity in economic writing. Here it should be read as an exposure figure instead. That is roughly how many Indians are trading virtual digital assets right now, according to Chainalysis and every single one of them is currently operating inside a system that taxes their gains but does not govern the platform they trade on.

The Gap the Number Hides

Zoom into what "no market regulator" actually means for one of these 12 crore people. If a stockbroker mismanages your money, SEBI has a grievance redressal mechanism, disclosure norms and the power to penalise. If a VDA exchange mismanages your money - freezes withdrawals, misrepresents its reserves or simply vanishes - there is no equivalent body with jurisdiction.

The Prevention of Money Laundering Act requires that exchange to verify your identity and report suspicious transactions. The Income-tax Act taxes your gains at a flat 30 percent with no loss offset. Neither of these touches whether the exchange is solvent, honest or fair to you as a customer.

The state has built a fiscal net and an anti-laundering net, but not a protective one.

Why the Securities Market Code Couldn't Just Absorb This The

SMC was drafted to be "technology-neutral"

  • a deliberate design choice meant to future-proof the definition of a security so it doesn't need amending every time a new instrument appears. But VDAs don't satisfy the legal characteristics of securities or derivatives under that definition, so technology-neutral language ends up excluding them rather than including them. The Committee's own words are blunt: this creates a "regulatory grey area," and that grey area translates into "heightened risks of fraud, market manipulation, misrepresentation and inadequate grievance redressal" for the actual people trading inside it.

What the SRO Proposal Is Actually Conceding

The recommendation for an interim Self-Regulatory Organisation, operating under a designated regulator's oversight, is not a minor technical fix - it is Parliament's own committee conceding that five years of taxing and monitoring VDAs without governing them has left millions exposed and that waiting for a full standalone law is no longer defensible.

An SRO would prescribe governance standards, transparency disclosures and grievance redressal even before a comprehensive Act exists - essentially borrowing a model banking and mutual funds have used for decades to self-police an industry while formal legislation catches up.

The tension for Mains aspirants to actually hold onto isn't "should crypto be banned or allowed"

  • that debate is largely settled by the tax regime already treating it as a legitimate, if risky, asset class. The real tension is narrower and sharper: can a state credibly tax and monitor an asset class for a decade while declining to protect the person holding it? The Committee's report is the first time that question has been asked from inside Parliament rather than outside it.

Quick Facts

  • Body: Parliamentary Standing Committee on Finance, chaired by Bhartruhari Mahtab. Bill under review: Securities Market Code (SMC), 2025, introduced in the Lok Sabha in December 2025. Users affected: nearly 12 crore Indians in the VDA ecosystem, per Chainalysis data.

    Current regime: 30 percent tax on VDA transfer income, 1 percent TDS and PMLA reporting-entity obligations - but no dedicated market regulator. Proposed interim fix: Self-Regulatory Organisations under a designated regulator's oversight, pending a full legislative framework.

Beyond The Headlines
GS Paper 3 Virtual Digital Assets (VDAs) - Securities Market Code, 2025 and the Self-Regulatory Organisation (SRO) proposal

Connect the dots for your UPSC preparation.

Standard news covers the event. Log in to read our comprehensive analysis and uncover the hidden constitutional, structural, and ethical dimensions of this topic:

1

The full mechanism by which "technology-neutral" drafting in the SMC accidentally excluded VDAs and why fixing this needs more than a definitional tweak.

2

How an interim SRO model would actually be structured and enforced under a designated regulator, drawing on precedent from mutual funds and stock exchanges.

3

The specific way-forward roadmap distinguishing short-term investor safeguards from the long-term standalone VDA law the Committee wants.

4

A named case study connecting India's regulatory vacuum to a real global exchange collapse and the lesson it holds for UPSC's GS3 economy and internal security overlap.

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Securities Market Code 2025 Virtual Digital Assets cryptocurrency regulation India Self-Regulatory Organisations Parliamentary Standing Committee on Finance PMLA reporting entities VDA taxation

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