Indian crypto exchanges consider legal proceedings against the RBI

We recently reported on the RBI’s order to all institutions affiliated with it to withdraw support from any individual or institution dealing with cryptocurrencies. While contrary to what the Indian media would have you believe, this is not a ban on crypto in India and crypto trading is not illegal. However, it has made it quite difficult for Indian traders to buy into and remit cryptocurrencies in India.

To understand what exactly this means, I asked around in the Indian crypto community and while the people are Zebpay, Coinsecure and Unocoin weren’t willing to comment on the situation, Sharan Nair from CoinSwitch, a Sequoia Capital backed crypto to crypto exchange and Nischal Shetty, the founder and CEO of WazirX, a newly launched crypto exchange shared some interesting insights into the current scenario.

Do the money launderers and the terrorists really care?

In past announcements, the RBI has reiterated its stance that it doesn’t endorse cryptocurrencies as they can be used for terror funding and money laundering without any accountability or traceability. The Indian exchanges have already alleviated these fears by adhering to the highest levels of KYC and AML. The truth is, the grounds for this measure is truly unfounded, says Sharan Nair, a Senior Vice President Marketing Business Development at CoinSwitch.

“Currently there is a lot of uncertainty on why the RBI actually said this. But it cannot be about the reasons the RBI has stated in the past. Think about it; would the money launderer or the terror funder be truly bothered by this move? I certainly don’t think so,” says Nair.

As the circular has already been passed by the RBI, there will be no more room for discussions. Crypto stakeholders in the country will have to make a stand and have to consider legal proceedings to at least get a stay order on this circular. Given that the banks and the companies have 3 months to sort this out, a strong case can be presented to the Supreme Court.

This seems to be the route that most crypto exchanges seem to be going towards. Jincy Samuel, the COO of Coinsecure told Coindesk this –

We, along with the other industry players are in talks with IAMAI and BACC to see if they could help us in getting a hearing at the Supreme Court to see if stay orders are possible on the current decision of the RBI.

Ajeet Khurana, the recently appointed CEO of Zebpay tweeted the same thing in a more defiant tone –

No way I am stopping. We will continue to do what is best for our customers, and what is best for our country. Am studying the present situation and will react shortly. and we will emerge stronger.

— Ajeet Khurana (@AjeetK) April 5, 2018

The BACC angle

The blockchain and cryptocurrency council of India (BACC) is a think tank within the umbrella organisation the Internet & Mobile Association of India (IAMAI) has started to explore options of legal proceeding against the RBI for the same. The role of the BACC is to be an advocate of digital financial innovation and works with different stakeholders in the Government and industry bodies. Interestingly, Ajeet Khurana, Zebpay’s current CEO, is also the head of the BACC, and his statement on twitter really bears teeth.

Nischal Shetty, the founder of the newly launched cryptocurrency exchange WazirX made an interesting distinction between the RBI and the government. He says, “we should be looking at examples of the SEC in the USA and the FSA in Japan, who are still watching the space and waiting for regulatory frameworks from the government before implementing orders. The RBI has kind of jumped the gun here and gone ahead and made a statement, which is probably a first. Also, as this statement by the RBI and not the government, it looks like there is a possibility of crypto players looking at legal options.”

He also shared that they haven’t received any circular from the RBI on what the next steps should be. Unocoin, another big cryptocurrency exchange in India confirmed the same and said: “As on today, no banks (that we are working with) have issued any notice to us and when they do and if it has an impact on you and /or us, we will surely communicate to you.”

Our Take

The RBI has clearly jumped the gun and it looks like a poorly thought out knee jerk reactions. If their fears were about money laundering and terror funding, this action doesn’t affect them whatsoever. The big and connected traders will always have ways to liquidate their funds through overseas accounts. This ruling only affects the common man who was looking at cryptocurrencies as a new asset class to invest in.

This ruling sounds very similar to what happened with South Korea a few weeks, which turned out to be fake news. This, while not fake, can be taken up in court and it will be interesting to see what happens. They could either not budge and we could see a long drawn court battle between the exchanges, BACC and the RBI. On the other hand, the RBI could be more progressive about cryptocurrencies, and think of regulatory frameworks, rather than take a step that stands to take away a huge opportunity to help investors make big returns. We urge the RBI to do the latter.

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