Gold has always been the favorite metal of Indians. The mammoth quantity of gold stored in Indian households has always been a hot topic of discussion in economic circles. The shiny metal has always been the first sought-after investment for us. In recent times even though there has been a rise in retail investors in India, there are many who don’t want to take the risks of the volatility of the market.
Many fintech companies sought this interest in Gold as an opportunity and launched their own investment product – Digital Gold.
Just when the interest of people had started to uptick, it seems like the government has decided to intervene and bring the digital gold under its own ambit for protecting the investors.
Crypto, Digital Gold to come under regulations?
According to sources, The finance ministry, the Securities and Exchange Board of India (Sebi), and the Reserve Bank of India (RBI) are working to bring digital gold, along with crypto assets, under some regulatory oversight. These steps are being taken as concerns regarding the unchecked growth in such investments without investor protections are growing.
The government is also planning to address the issues of transparency, outrageous claims, and lofty promises made by some companies in unregulated assets to attract investors.
To implement this, the government may amend the Sebi Act and Securities Contracts Regulation Act to categorize digital gold as a security.
Offering Digital Gold is a violation of the SEBI act
In September and October, SEBI barred registered brokers and investment advisers from offering digital gold and other unregulated investment products. According to SEBI, offering such products was a violation of the Sebi Act and, as a consequence, could lead to monetary penalties and license cancellations as well.
Because of this, some fintech companies selling digital gold had to stop such sales while others hived off the digital gold offering to their unregulated parent entities. This ban opened up an arbitrage opportunity, with RBI-regulated entities being reigned in and unregulated firms being able to offer digital gold without any penalties.
As per the sources, the government is in the process of setting up regulated gold exchanges under Sebi’s regulatory purview. SEBI has already approved the framework for operationalizing gold exchanges. This framework would enable the facilitation of trading in gold through electronic gold receipts.
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