Crypto exchanges call India SRO plan a workable interim fix

Edul Patel, founder and CEO of Mudrex, said the committee's observations echo the industry's long-standing concern that the lack of consumer protections and market conduct norms leaves investors with limited remedies against fraud and market manipulation.

Snigdhaneel Satpathy, partner at Saraf and Partners, called the SRO model a "stop-gap measure." SROs in India cannot levy penalties or investigate, he said, and they cannot address cross-border issues. He acknowledged the SRO route is a practical interim middle ground while the government prepares to regulate the asset class.

Satpathy advised companies to prioritise grievance redressal mechanisms when establishing their SROs, a step the crypto industry association has been working on even before the committee report. He also recommended segregation of customer assets from company assets, regular disclosures, transparency reports on custodian arrangements and asset liabilities, and token-listing standards that explain token-related risks to customers.

Retail participation in crypto has accelerated since last year's market rally, Satpathy said, adding urgency to the regulatory question. The committee's proposal gives exchanges a framework to operate under while leaving the definitional question of what a VDA legally is for another day.