The Reserve Bank of India (“RBI”) might still be hedging its bets on Cryptocurrencies (more of which in a moment), but it has more or less given up trying to stop the inexorable rise of Blockchain, and given the technologies involved have never recognised national boundaries, that means imminent de facto regulation of Blockchain not only in the subcontinent’s own financial backyard but in financial markets everywhere. And it’s a smart move too: with no other major regulator showing the slightest willingness to step up to the plate, RBI’s decision to pave the way to full Blockchain regulation will almost inevitably lead to it becoming a lead regulator for Blockchain worldwide.

Which is a good place to be, because Blockchain technologies are set to radically change the way we all do business, the way we buy things and how we deal across boundaries in increasingly globalised markets, all of which demands an innovative regulator with the oversight skils to steward the complex processes involved.

And, at last, we have one.

RBI’s Framework Report was issued on 18th April and announced that a Regulatory Sandbox will be set up, a common regulatory tool that enables innovators, financial service providers and regulators to work together with a small number of consumers over a short(ish) period, conducting field tests and collecting evidence as a basis for future formal regulation. Or, in other words, as the RBI’s bloodless boffins put it: “a structured avenue for the regulator to engage with the ecosystem and to develop innovation-enabling or innovation-responsive regulations that facilitate delivery of relevant, low-cost financial products”. Talk about sucking the excitement out of a project…

But don’t let the geeky language get us down, let us instead unite in praise of the Sandbox because it gives Blockchain a lead into the fastest growing large economy on the planet as well as some of the world’s most innovative and exciting markets. With those factors in play, just imagine what India and Blockchain might do together. And according to the RBI’s Report these flesh and blood consumer trials will be completed within a mere six months, so in theory we can look forward to a Blockchain Christmas. What could be more exciting than that?

Interestingly the Reserve Bank has also given us a glimpse of the specific new technologies that will be tested in the Sandbox: mobile device payments, digital identity software, data analytics, AI and machine learning applications: all of which are certain to make the hearts of bankers and on-line retailers skip a little faster; as will the “eligible sectors” of the programme, which include well know finance friends such as retail payments (obviously), money transfer platforms, KYC checks (hurrah) and a limited number of cybersecurity products (admittedly not so exciting).

And for those of you who are now starting to re-read that list again, don’t bother: Cryptocurrencies aren’t in it (yet). At least as far as India is concerned, the non-fiat end of the currency spectrum is still struggling to get out from under the Finance Minister’s Budget Statement from 1st. February last year. But even so, industry pressure groups are already stepping up their lobbying for Crypto’s exclusion from the Sandbox to be removed. Take Nasscom for example (which represents Indian IT companies, so its voice certainly counts), which has called for a regulatory re-think, arguing (correctly) that “…cryptocurrencies are an important part of Blockchain technologies and their exclusion will inhibit testing for technologies already approved for use in the Sandbox”. And the Payments Council of India has also weighed into the debate: arguing that the exclusion of non-fiat currencies is likely to be a major fetter on innovation. Those are pretty powerful arguments, coming from highly influential bodies and they’re certainly not alone. For one, the Supreme Court has now re-listed the Cryptocurrency appeal for the second week of July (to give RBI time to come forward with a new regime rather than have its 2018 policy declared unlawful), so don’t bet against another U Turn from Mint Street in the not too distant future.

North Block Capital Fund I is an open-ended regulated fund listed on the Gibraltar Stock Exchange specialising in crypto assets and blockchain related technology.

Executive Overview

Like most of us, I suppose, I listened with interests to the comments made last year by India’s Finance Minister as part of the Union Budget Debate, which not only caused the value of Bitcoin to soar on international exchanges, but also precipitated the Reserve Bank (as Monetary Regulator on the subcontinent) to issue what now seems to have been a singularly ill advised policy attempting to strangle these new technologies at birth. These policies have since been subject to formal challenge in the Supreme Court of India and, as we have commented on this site before, the resulting litigation has inexorably driven the Regulator to back away from its original position.

This latest announcement of the Sandbox initiative, and likely introduction of cryptocurrencies into the process is all part of that process of re-evaluation and I believe it is to be warmly welcomed.

Because it is now beyond question that Blockchain has the potential to fundamentally change the way we all do business, which is why I’m so proud that the North Block Capital Fund will play a part in that process. India is now squarely at the forefront of major regulatory and technological change, and I want our investors to be able to share in the exciting opportunities this offers.

Paul Fallon

Author Paul Fallon

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