The RBI has issued a Financial Stability Report highlighting DeFi and US regulatory efforts in the crypto sector
The latest report from the RBI also covers global regulatory bodies’ efforts to scrutinize the latest developments in the DeFi sector.
The Reserve Bank of India (RBI) has released its latest Financial Stability Report (FSR), detailing significant recent developments in the domestic and international banking and fintech sectors. The report briefly mentions the domain of decentralized finance (DeFi), highlighting global regulatory attention to its developments. Additionally, the RBI discusses efforts by the US to regulate the cryptocurrency sector.
RBI’s FSR report mentions DeFi technology
According to the RBI’s FSR report, digital financial systems have gained global adoption, resulting in the emergence of innovative business models and financial distribution channels.
The RBI highlighted that advanced technologies such as distributed ledger (blockchain), cloud computing, artificial intelligence (AI), and machine learning (ML) have significant implications for financial systems worldwide.
Specifically addressing DeFi, the report noted that international regulatory bodies such as the Financial Action Task Force and the International Organization of Securities Commissions (IOSCO) are actively monitoring developments in the DeFi space. These global financial watchdogs are concerned that the rapid expansion of DeFi could impact broader asset markets and consequently affect global financial stability.
US efforts to regulate the crypto sector
The Federal Reserve has noted that the US government is working on establishing a regulatory framework for digital assets through the Financial Innovation and Technology for the 21st Century Act (FIT21) legislation. This legislation is set to empower the US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) with oversight over digital assets, related venues, and entities. According to the RBI, the FIT21 Act is expected to provide market certainty and some level of recognition for digital assets within the country.
The RBI report also discusses the US SEC’s approval of exchange-traded products (ETPs) for certain cryptocurrencies, such as Bitcoin and Ether ETFs.
Alternatively, India’s central bank has raised alarms about the increasing incidence of cybercrimes associated with the cryptocurrency sector globally.
“In 2023, ransomware payments, business email compromises, and the costs of data breaches reached unprecedented levels. The financial sector alone recorded more than 20,000 cyber intrusions and digital attacks, leading to cumulative losses of US$ 20 billion over the past two decades. Moreover, cyberattacks tend to escalate during times of political and economic instability, such as geopolitical tensions, resulting in significant disruptions,” the report highlighted.
RBI’s stance on crypto in India appears to be unchanged
The RBI has reiterated its preference for banning cryptocurrencies in the country. Due to the anonymity they offer in transactions, the central bank is worried that crypto assets could be misused for activities such as financing terrorism and laundering money. Additionally, the cryptocurrency sector empowers individuals with greater control over their funds and reduces reliance on intermediaries like banks for financial transactions, potentially challenging the monopoly of central banks over their financial systems.
“The RBI’s latest Financial Stability Report (FSR) released today briefly mentions the DeFi sector. Industry stakeholders in India are cautiously optimistic about the future of the fintech sector.
R Venkatesh, Head of Public Policy at CoinSwitch, remarked on the report, ‘The FSR contains minimal content pertaining to the crypto asset sector, which could be interpreted positively or negatively depending on one’s perspective. There is no specific adverse commentary regarding the stability risks associated with digital assets, which could be seen as significant or insignificant depending on one’s interpretation.'”
The latest report seems to confirm that the RBI remains hesitant to recognize cryptocurrencies as valid forms of payment in the country in the foreseeable future.
