India Weighs Stricter Rules for Digital Gold Amid Growth Concerns

The Indian government is considering stricter regulations for digital gold, including requiring every unit to be backed by physical bullion and bringing it under the joint oversight of the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi). The finance ministry has sought views from regulators, banks, and other stakeholders, with a broad consensus that digital gold should be recognized as a security under the Securities Contracts (Regulation) Act, 1956.

The RBI and Sebi have warned investors about dealing in digital gold, citing concerns over investor protection and money laundering. Industry estimates suggest that the digital gold industry manages around $3 billion of assets, with an average ticket size of ₹100.

Some stakeholders have expressed support for regulatory oversight, arguing that it will ensure no regulatory arbitrage and end uncertainty among legal participants. The Digital Precious Metals Assurance Council of India, a self-regulatory organization formed by digital gold platforms this year, is also looking to standardize processes and procedures around buying, selling, and storing gold.

However, there are concerns that stringent regulations may drive out fly-by-night operators who have infiltrated the segment. Some executives have emphasized the need for a balance between regulation and innovation in the digital gold market.