INDIA Law and Practice Contributed by: Shilpa Mankar Ahluwalia, Purva Anand and Ansh Jain, Shardul Amarchand Mangaldas & Co
10.2 Local Regulators’ Approach to Blockchain Unlike with cryptocurrency, the GOI and regulators have taken a positive stance towards blockchain technology. The RBI is playing an active part in col - laborating with banks piloting blockchain applications and has also included applications of blockchain tech - nologies to be tested in its sandbox. The GOI has developed a National Strategy on Block - chain to synergise stakeholder inputs and develop e-governance applications of blockchain. The GOI recently launched the Vishvasya blockchain technol - ogy stack to offer blockchain-as-a-service (BaaS) through a geographically distributed infrastructure designed to support various permissioned block - chain-based applications. It has also announced the creation of a blockchain sandbox platform called NBFLite. Several state governments in India are also utilising blockchain technologies for supply chain management, land registry and public record-keeping. 10.3 Classification of Blockchain Assets Blockchain assets are not considered a form of regu - lated financial instruments. They have not been clas - sified as securities and are not regulated under the current legal framework laid down by SEBI. 10.4 Regulation of “Issuers” of Blockchain Assets The “issuers” of blockchain assets as well as initial sales or offerings of blockchain assets are not regu - lated under a dedicated legal framework. Protection against potential fraud by the issuer or intermediaries involved will be based on appropriate legal recourse under general penal laws and consumer protection legislation such as the 1860 Indian Penal Code and the 2019 Consumer Protection Act. 10.5 Regulation of Blockchain Asset Trading Platforms Blockchain asset trading platforms as well as second - ary market trading networks for blockchain assets are not currently regulated by a consolidated framework. See 6.3 Impact of the Emergence of Cryptocurrency Exchanges .
ple, customer onboarding regtech providers in India are typically engaged as agents of the REs through outsourcing arrangements and are subject to indirect regulation to some extent through audit, access rights and other similar checks and balances. In addition, under the regulatory framework governing use of Aadhaar, there are certain specific data security requirements such as masking of Aadhaar information and requirements on storage of Aadhaar, which are also relevant for regtech providers utilising the Aad - haar database for their services. 9.2 Contractual Terms to Ensure Performance and Accuracy See 9.1 Regulation of Regtech Providers and 2.8 Outsourcing of Regulated Functions . Requirements pertaining to assured performance and accuracy for unregulated regtechs are contractually agreed. As an industry norm, they usually contain a limitation of liability clause and an express “no warranty” clause as to their accuracy and completeness. 10. Blockchain 10.1 Use of Blockchain in the Financial Services Industry Traditional financial services players such as banks are developing interesting and effective applications for the use of blockchain for the financial services industry in India. India’s Bankchain consortium has launched a permission-based blockchain for integrat - ed and shared KYC (Primechain KYC) and is exploring its use for processing letters of credit, tax invoices and e-way bills, particularly for MSMEs. Meanwhile, the RBI Innovation Hub (RBIH) is also currently exploring a blockchain-based pilot project for reducing loan fraud. On the private side, financial blockchain start-ups in India are primarily focused on cryptocurrency exchanges. However, there is a growing interest in newer applications for blockchain, such as supply chain financing and digital identity verification.
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