On March 4, the Supreme Court overturned the Reserve Bank of India’s (RBI) de facto ban on cryptocurrencies. In an April 2018 circular, RBI had banned crypto traders and exchanges from accessing formal banking channels.
The apex court found RBI’s actions ‘disproportionate’ to the risks it sought to address and, therefore, unconstitutional. How did we get here? In part because of an inadequate — and even secretive — consultation process.
An RTI application filed a few days after RBI’s ban revealed that the central bank undertook no research or consultation before acting. Later, when the Supreme Court asked it to consider representations by crypto exchanges, RBI filed a response so general, that the court had to order a detailed point-wise reply within two weeks.
Meanwhile, GoI also didn’t publicise its consultation on regulating virtual currencies initiated on MyGov.in, meant to aid a government committee’s deliberations. There is no way to verify whether the committee considered any comments on the platform, most of which are brief, rudimentary and unverifiable opinions.
A robust consultation would have allowed GoI and RBI to appreciate technical intricacies and the impact of regulation on the cryptocurrency industry, and design an appropriate regulatory framework. Instead, the story of crypto regulation in India is now a classic example of the harms of opaque regulation on disadvantaged customers and an expensive litigation.
Greater transparency in law-making allows businesses to plan and be future-ready. For example, many personal data-reliant startups today are already planning their compliance with the forthcoming data protection law.
However, consultative regulation is about much more than ease of doing business (EoDB). It prevents entry barriers, increases compliance, leads to greater regulatory accountability, enhances regulatory capacity, and aids jurisprudential development and academic discourse.
Opaque law-making processes tend to act as market entry barriers, as firms, groups of firms with greater regulatory access are able to shape policy better suited to their business goals. In India, firms with a presence in Delhi often enjoy greater government access. This, coupled with non-consultative policymaking, may result in privileging the stakeholder with proximity to GoI over one with the most innovation.
Recognising this need to widen the stakeholder base, the Telecom Regulatory Authority of India (Trai) and the committee of experts tasked with framing India’s privacy law held policy consultations outside Delhi in the past two years.
Consultative processes are likely to increase the industry’s confidence in regulation and create greater buy-in to regulatory aims. Documenting legislative intent through notes on stakeholder comments and meetings will ensure greater accountability for both the regulator and the regulated, reduce subjectivity in enforcement, and even inform academic discourse.
Consultative approaches are particularly crucial in technology policy, where technological growth far outpaces law-making. Not only do they help regulators be well-informed, but they are also a means to solve for a lack of state capacity. In 2016, in the ‘Cellular Operators Association of India vs Trai’ case, Justices Kurian Joseph and JRF Nariman of the Supreme Court called upon Parliament to pass a law like one in the US, which would mandate transparency in subordinate rulemaking.
They identified stakeholder consultations, a consideration of stakeholders’ views, and a reasoned explanatory note outlining the regulator’s position on these views as key elements of transparency.
They opined that transparency would help reduce litigation around subordinate legislation being arbitrary, as stakeholders’ grievances could be, at least partially, addressed even before the legislation was made, in addition to promoting openness and reducing arbitrariness in law-making. In the cryptocurrency judgment, sadly, the bench that included Justice Nariman, stopped short of finding RBI’s consultations lacking. These principles on transparent law-making should apply to technology policy and law-making, irrespective of industry.
Technology will, necessarily, have far-reaching implications on multiple stakeholders, all of whom are very differently placed. As such, the only way to make informed regulatory decisions is to take into account these diverse perspectives and implications.
Chaudhari and Rastogi are policy director and managing partner, respectively, Ikigai Law. Ikigai represented crypto exchanges in their Supreme Court challenge against RBI.