Mumbai: Bitcoin’s scorching rally, the mystery surrounding crypto assets and the unregulated nature of the market are driving several crypto-exchanges in India to sign for the first time a ‘code of conduct’ that they hope will help them win the government’s trust and keep crooks at bay.Over the last one month at least five exchanges have signed the code which will be shortly submitted to the finance ministry and financial market regulators.With

Mumbai: Bitcoin’s scorching rally, the mystery surrounding crypto assets and the unregulated nature of the market are driving several crypto-exchanges in India to sign for the first time a ‘code of conduct’ that they hope will help them win the government’s trust and keep crooks at bay.Over the last one month at least five exchanges have signed the code which will be shortly submitted to the finance ministry and financial market regulators.With more and more urban investors opening accounts to try their luck in the middle of a pandemic — as the price of the popular virtual currency Bitcoin spiralled from ₹4.5 lakh in March to well over ₹31 lakh now — multiple bourses feel the need to lay down the rules of game and introduce uniform compliance standards to instil confidence among investors.“It would also serve as a framework if the exchanges come under regulation. For instance, putting in place two-step verification for customers along with guidelines on KYC to prevent use of cash, anonymous transaction, and enable traceability — whether the investors’ ID match with those in the bank account details, etc.,” said Nischal Shetty, founder of WazirX, one of India’s largest crypto exchanges. Cryptos like Bitcoin, Ethereum and Ripple, which emerged after the 2008 meltdown amid distrust in central banks, are not ‘security’ in a legal sense as these are not issued by any entity - Cryptos are a combination of finance and cutting-edge technology which changes almost every year.The code, according to industry sources, would require exchanges setting up a monitoring mechanism to track transactions, customer complaints, and report suspicious transactions, besides following a risk-based approach in customer on-boarding.“All major jurisdictions except China have opted to regulate crypto-asset platforms in one form or another. For instance, Singapore’s Payment Services Act covers crypto-asset activity. In India, a licensing regime or statute-backed self-regulation can be introduced,” said Jaideep Reddy, who heads technology law at Nishith Desai Associates.Besides the misconception about cryptos, incidences like the recent fraud by an offshore exchange which used social media to lure unsuspecting investors in India and later blocking their fund, may stoke fears about virtual currency.Against this backdrop, signatories to the code would have to spell out and display the fees and charges to customers, set up a mechanism to address customer grievances, compile a customer’s transactions with other exchanges, and bar employees of exchanges from accepting any payment, loan, or gift to favour anyone.According to Sathvik Vishwanath, CEO and co-founder of Unocoin (also a signatory to the code), “A framework for self-regulation is the need of the hour. The government could take time to come up with regulations. We neither want bad actors to take advantage of the present exchanges nor want the exchanges in avoidable trouble.”Exchanges have become cautious in taking new customers. With trading volumes soaring, Giottus, another large exchange, identifies ‘politically exposed persons’ investing in Bitcoins under KYC rules. “The industry body IAMAI (Internet & Mobile Association of India) has been working on a uniform code of conduct. They have also approached us with a proposal to join the association. We are examining the proposal. If we see value we will join,” said Arjun Vijay, co-founder of Giottus.According to industry circles, the code may restrain a member from buying or selling for a certain period from the listing of the token. Some of the leading exchanges segregate total customer funds into ‘hot’ and ‘cold’ wallets to protect bulk of the fund kept in the latter from unauthorised access. In India, crypto trading surged since March 2020 after Supreme Court lifted the Reserve Bank of India’s ban that prevented banks from offering banking services to crypto exchanges and crypto traders.Large exchanges want a proper regulation so that their platforms receive wider acceptance like some of the advanced markets. In Japan, crypto exchanges are regulated by the Payment Services Act which require registration, record keeping, taking security measures and customer protection.

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