Monthly Archives: January 2014

Indian Corporates Are Lobbying For Regulated Digital Currency In India

Indian Corporates Are Lobbying For Regulated Digital Currency In IndiaBitcoins are witnessing ups and downs in the Indian markets. As on date the Bitcoin websites have started taking legal precautions. While some have shut down their shops temporarily yet others have postponed the launch of their website altogether to avoid legal risks. The crux of this scenario is that Bitcoin websites in India must comply with Indian laws to remain legal.

The most vulnerable segment in this regard is the Bitcoins exchanges operating in India that have failed to comply with the Internet intermediaries requirements and cyber law due diligence requirements (PDF) as prescribed by the Information Technology Act, 2000 (IT Act 2000). The way Indian banking regulatory environment is changing, regulation of Bitcoins in India is the only viable option left before the regulatory authorities, including the Reserve Bank of India (RBI).

The Securities and Exchange Board of India (SEBI) has announced that it would release corporate governance rules for the listed entities in India. Further, the Parliament of India passed the Indian Companies Act, 2013 (PDF) to improve the corporate culture in India. Powers of Serious Fraud Investigation Office (SFIO) were also enhanced so that they can effectively deal with corporate frauds and crimes in India.

Recently the Reserve Bank of India (RBI) cautioned users of virtual currencies against various risks, including legal risks. The Enforcement Directorate (ED) also searched few Bitcoin websites in India as it believes that Bitcoins money can be used for hawala transactions and funding terror operations. In these circumstances the role of Indian corporates for lobbying for regulated digital currencies in India must be analysed.

According to Zee News as more Bitcoin operators shut shop in India on fears of regulatory and enforcement actions, some large corporates are believed to have begun lobbying hard with regulators and government departments in favour of “digital currency”. While none of these groups are as yet into Bitcoin business, some of them may be interested in setting up their own “virtual currency” platforms, a senior official said.

The point being advocated by such companies before the regulators and policymakers is that the world of banking and financial transactions may eventually move beyond the current brick-and-mortal model to the digital world, the official said, but refused to divulge any names.

Their representatives are believed to be putting across their views through meetings with top officials at the concerned regulatory authorities and government departments, while also suggesting a proper legal and regulatory framework for operations relating to digital currencies. The regulatory glare has intensified on Bitcoins in recent weeks due to possible money laundering, cyber security and other risks (PDF), while many operators have suspended their operations after RBI’s warning against use of such currencies.

Some of these operators have also approached RBI for clarifications and have requested it to put in place a proper regulatory framework for “genuine” virtual currencies. While Bitcoin operators are expecting clear regulatory clarifications that virtual currencies are not illegal per se, experts say such hopes are futile given that these currencies are saddled with number of significant risks at the moment. There have been regular reports of cyber criminals hacking and stealing virtual currencies across the world.

More and more legal violations are being reported these days. In the past there have been many media reports of the usage of Bitcoins for illicit and illegal activities in several jurisdictions. Now it has been reported that some Indian tea traders violated Indian laws by engaging in illegal Bitcoin transactions. It is high time for Indian regulatory authorities to regulate use and dealings in digital currency in India.

Securities And Exchange Board Of India (SEBI) Would Release Corporate Governance Rules For The Listed Entities In India

Securities And Exchange Board Of India (SEBI) Would Release Corporate Governance Rules For The Listed Entities In IndiaCorporate environment is one of the guiding forces for increased foreign direct investments (FDI) in any country. After serious corporate governance lapses and increased corporate frauds in India during the year 2013, Indian government decided to rejuvenate the same.

Taxation issues were at the core of dispute between big companies and Indian government. For instance, companies having commercial presence in India were accused of violating the transfer pricing laws of India. Transfer pricing orders have already been issued against Vodafone and Shell India and Nokia has been accused of violating the income tax and transfer pricing laws of India.

It is not the case that there are no laws in this regard. There are provisions under the Income Tax Act for avoidance of tax by certain transactions in securities and avoidance of income-tax by transactions resulting in transfer of income to non residents. To further curb income tax avoidance and to check black money accumulation in foreign jurisdictions, Income Tax Overseas Units (ITOUs) of India in foreign countries would also be established.

However, a need to overhaul the corporate regulatory environment of India was also felt. The first thing that Indian government did to improve the corporate environment of India was the formulation of a new legal framework for Indian companies. The Parliament of India passed the Indian Companies Act, 2013 (PDF) to give effect to this requirement. Powers of Serious Fraud Investigation Office (SFIO) were also increased so that they can effectively deal with corporate frauds and crimes in India.

Now media reports have claimed that the Securities and Exchange Board of India (SEBI) will soon come out with new corporate governance rules for the listed entities in the country.  SEBI chairman U.K. Sinha said on Saturday that the board will take up the proposals in its next board meeting and will announce them after board approval.

This is a good step taken by the SEBI and it would bring transparency and accountability in the corporate affairs. We hope that SEBI, Reserve Bank of India (RBI), Income Tax Department of India, etc would also consider providing some regulations for Bitcoin exchanges of India that are operating without complying with Indian laws as on date.

Code Of Bank’s Commitment To Customers By Banking Codes And Standards Board Of India (BCSBI)

Code Of Bank's Commitment To Customers By Banking Codes And Standards Board Of India (BCSBI)Banking industry of India is facing a variety of financial and banking frauds in India. For instance, Internet banking frauds, ATM frauds, RTGS frauds, etc are on rise in India. Even IT and cyber frauds in Indian companies are increasing. The cyber law and cyber security trends of 2013 provided by Perry4Law have also highlighted this fact.

The Reserve Bank of India (RBI) has also taken note of this situation. RBI Working Group on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds has been constituted and it submitted its report. Further, the Security and Risk Mitigation Measures for Card Present Transactions in India has also been brought into force by RBI.

However, Indian banks are not complying with directions of RBI in this regard especially the cyber law due diligence requirements. Even cyber security due diligence is not followed by Indian banks. Economic Times has reported that a Code Of Bank’s Commitment to Customers by Banking Codes and Standards Board of India (BCSBI) (PDF) has been issued by BCSBI.

Banks will be forced to make a drastic change in rules in the new year that will be much more supportive of customers who are victims of electronic fraud. Customers will have to be compensated for such theft unless the bank can prove the fraud occurred due to negligence on part of the client.

The code has also prescribed a simplified process for opening basic accounts and talks about offering doorstep service for disabled customers and senior citizens, while frowning upon the misselling of third-party products such as insurance. The BCSBI frames a code of commitment for banks aimed at protecting customers’ rights and entitlements. It also obliges every branch to display on notice boards the documents required for opening small accounts and pledge itself to opening more such accounts.

The revised code on electronic transactions puts the onus on the bank to prove the customer compromised the user ID and password, leading to the fraud. This seeks to overturn the current system that’s loaded in favour of the banks, with customers who have been defrauded getting scant comfort. Banks are known to resist attempts by aggrieved customers to get their money back, with some receiving justice years after the fraud has been perpetrated.

Customers have also been known to be falsely accused of orchestrating such frauds themselves. Banks have thus far been getting away with it because the agreement that governs such issues states that they are not responsible for any unauthorised transactions.

“The revised code has ensured that the customer’s interests are fully protected and he is not put to any harm or financial loss,” said AC Mahajan, chairman of BCSBI. “The revised code says that if the customer incurs any direct loss due to a security breach of the Internet banking system that is not contributed or caused by the customer, the bank will bear the loss, unless it is able to establish that the customer is guilty.” KC Chakrabarty, deputy governor of the RBI, had pointed out the one-sided nature of the agreement a few years ago. “The banking agreement is so worded as to afford no right to the customer and is extremely lopsided.

Banks are not responsible for any unauthorised transactions even if carried out by their employees. In fact, given an institution’s resources, the onus should be on banks to prove that the individual customer has compromised his user ID or password,” he said at an annual conference of principal code compliance officers. “Making networks safe and sound is the responsibility of banks. There must be in place a code of conduct for addressing issues in the non-face to-face transactions domain.”

The revised code, which is expected to come into force in January, assumes significance as electronic transactions and related frauds are likely to rise. The number of electronic transactions rose 11% to Rs 854 crore in 2012-13 over the previous year.