India-UK discusses the risks of digital assets and strict regulation around crypto assets

On Wednesday, India and UK addressed current affairs around digital assets and strict regulation and highlighted the need for strong international strategies to address the risks of digital assets. Participants from both countries offered updates on recent changes in their respective banking sectors at the second India-UK Financial Markets Dialogue, covering banking trends and new vulnerabilities and risks in the industry as India-UK discusses the risks of digital assets.

"The potential for reciprocal learning to increase knowledge about Central Banking Digital Currency (CBDC) was investigated. Participants spoke about "progress in delivering the G20 Roadmap, international developments relating to crypto assets, and the significance of robust global approaches." The recent failure of the cryptocurrency exchange FTX and the subsequent sell-off in the market have highlighted the weaknesses in the crypto ecosystem.

Crypto assets don't quite fit the bill for being classified as financial assets because they don't have any built-in cash flows. Instead, they are self-referential instruments. Ether, Bitcoin, and several other crypto assets are no longer considered the proper securities by US regulators. Participants talked about the UK's updates on the Solvency II reforms and a consultation on the implementation of an insurer regulation regime (IRR), according to the statement.

According to the statement, Indian participants were kept up to date on changes in India's regulatory approach to insurance to improve business accessibility and promote the entry of new firms for greater insurance penetration. The potential for leveraging the asset management sectors in favor of broader cross-border trade and investment was also discussed during the meeting, which was co-chaired by Surbhi Jain, Joint Secretary of the Department of Economic Affairs, and Richard Knox, Director for International Financial Services at the Treasury Department.

The development of ecosystems, including technology-based solutions for the Social Stock Exchange, and knowledge exchange on regulatory frameworks for pension funds (PFs) in respective countries were among the emerging areas for collaboration identified by participants, the statement said. According to the statement, the commitment to continue working together on opportunities provided by GIFT IFSC across verticals, including capital markets for dual listing, sustainable finance, fund management, and reinsurance, was reiterated. The potential for further technical debate on the efficient regulation of ESG rating providers was also brought up by the two parties. It also reviewed how central banks now work together on climate scenario analysis and stress testing, as well as how to create capacity and raise awareness for climate risk and sustainable finance. Additionally, it stated that the potential for cooperation about sovereign green bonds would be investigated. According to the statement, "both sides agreed to engage bilaterally on these issues in the coming months, starting with the ministerial Economic and Financial Dialogue (EFD) later in the year and the government-led Sustainable Finance Forum in June to further green collaboration.