Reading time : 2 minutes
While the FIU-IND’s intent of ensuring regulatory compliance is commendable, the method of implementation is fundamentally flawed. Granting existing registered VASPs the authority to determine market entry leads to an anti-competitive environment that stifles growth and innovation.
By Anshuman Singh
Why requiring new applicants to get fit and proper certification from current VASPs is anti-competitive: The latest directive from the Financial Intelligence Unit of India (FIU-IND), which mandates new Virtual Asset Service Providers (VASPs) to obtain a Fit and Proper Certificate from already registered VASPs, as outlined in its revised circular dated January 20, 2025, raises substantial concerns regarding market fairness and competition. These concerns are further exacerbated by the extended delays in approving new VASP registrations, creating significant bottlenecks in the regulatory process.
Restricting Fair Market Entry: This requirement results in a scenario where existing market participants exert significant influence over new entrants. By assigning the responsibility of certification to incumbent VASPs, the process inherently discourages competition and may lead to selective approvals based on business interests rather than regulatory compliance.
Conflict of interest: Mandating new Virtual Asset Service Providers (VASPs) to obtain certification from their competitors introduces potential conflicts of interest. Established VASPs, aiming to preserve their market dominance, may be incentivised to deny or postpone certification for emerging competitors.
This framework creates an inequitable advantage for those already registered, while hindering healthy industry growth.
Barrier to innovation and growth: The cryptocurrency sector is driven by innovation, with startups and emerging businesses introducing new technologies, services, and efficiencies that enhance consumer benefits, and advances the ecosystem. However, these regulatory requirements impose bureaucratic obstacles that may impede innovation, foster monopolistic tendencies, and hinder India’s competitiveness in the global digital asset industry.
Lack of clear criteria and administrative delays: FIU-IND’s directive does not specify objective and transparent criteria for granting Fit and Proper Certificates. This lack of clarity enables inconsistent application and subjective decision-making, leaving new applicants at the mercy of the discretion of incumbent VASPs, rather than an independent regulatory process.
Further exacerbating the situation is the long-standing issue of delays in approving VASP registrations. Many applicants report that FIU-IND takes months, or even longer, to process applications, leaving businesses in limbo. The additional requirement of obtaining certification from competitors only extends this uncertainty, deterring investment and impeding sectoral growth.
Alternative approaches for fair regulation: Instead of allowing existing VASPs to control market entry, the FIU-IND should consider:
1. Independent Review Mechanism: A neutral regulatory body should assess new applicants for compliance rather than placing this burden on existing players.
2. Defined Evaluation Standards: Clearly articulated criteria for the Fit and Proper assessment should be outlined, ensuring transparency and fairness in decision-making.
3. Time-Bound Approval Process: A fixed time frame for assessing applications can ensure procedural efficiency and prevent undue delays.
4. Appeals and Grievance Mechanism: Allowing rejected applicants to appeal decisions will create checks and balances against unfair rejections.
5. Process Acceleration for VASP Registrations: Addressing administrative inefficiencies and increasing resources for reviewing applications can mitigate ongoing delays.
Indeed, while the FIU-IND’s intent of ensuring regulatory compliance is commendable, the method of implementation is fundamentally flawed. Granting existing registered VASPs the authority to determine market entry leads to an anti-competitive environment that stifles growth and innovation.
To maintain a fair and open market, regulatory oversight must remain independent and free from corporate influence. Additionally, the persistent delays in approving new VASP registrations highlight the urgent need for streamlining the processes.
FIU-IND should reassess this requirement and ensure that India’s cryptocurrency landscape fosters competition, innovation, and transparency — rather than protective monopolies.