Protecting consumer rights in the emerging era of virtual digital asset - Hindustan Times

Protecting consumer rights in the emerging era of virtual digital asset

ByHindustan Times
Oct 19, 2023 11:17 AM IST

This article is authored by Ashim Sanyal, CEO & secretary, Consumer VOICE and Kaushal Mahan, vice president, Chase India.

In the recent Leaders’ Summit organised under India’s presidency, the G20 unanimously acknowledged that cryptoassets are a relatively new subject for social order, as well as for monetary & financial stability. As such, there is an imminent need for global standards to regulate them. Member countries called for the swift implementation of the Crypto-Asset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS) to ensure transparency and the rapid exchange of information across national boundaries. The current lack of a well-established and enabling policy framework for cryptoassets in most countries, coupled with high price volatility, security breaches and platform bankruptcies, has led to situations where consumers have found themselves deprived of proper assistance when they need it. These circumstances underscore the pressing need for nations to develop a robust consumer protection framework in the domain of Virtual Digital Assets (VDAs).

Digital assets (Bloomberg)
Digital assets (Bloomberg)

As the adoption of cryptoassets continues to grow, it has become evident that ensuring and promoting consumer protection when transacting in VDAs is not merely a policy obligation for regulators. A strong consumer protection framework is a pivotal step that will help the VDA sector in gaining broader acceptance across the world, which, in turn, will contribute significantly to unlocking the sector’s transformative potential. Establishing trust and instilling confidence among consumers and investors will serve as the foundational pillar for responsible innovation and robust market competition within the sector.

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The government, known for its consumer-centric approach, must step up to ensure comprehensive protection for citizens venturing into VDAs. The department of consumer affairs (DoCA) has, time and again, demonstrated its commitment to safeguarding consumer rights. The recent brainstorming session on VDAs, organised by the DoCA, was a much-needed effort in this direction. However, such workshops and sessions cannot be a standalone effort. To yield significant results, it is imperative that the government collaborates closely with relevant stakeholders to outline a consumer protection framework, tailored specifically for the VDA sector. Such intervention by the government should focus on an ex-ante approach, addressing potential risks before they escalate.

A strong consumer protection framework should focus on identification of systemic risks and guidelines aimed at safeguarding consumers from unfair trade practices such as unauthorised access, theft, security breaches and hacking, to name a few. Endeavours directed towards enhancing consumer awareness will help provide insights into potential threats associated with VDAs along with measures and best practices to guard against the same. Additionally, the existence of a robust consumer protection mechanism will also provide legal recourse in the event of a dispute, fraud and other issues, ensuring consumers’ rights are upheld. Such collective efforts will empower consumers to make well-informed choices and contribute towards nurturing an environment of security and accountability.

The European Union, Japan, South Korea and Canada have recognised the significance of safeguarding consumer rights and are resolute in their efforts to prevent unlawful activities linked to VDAs. They have drafted guidelines and issued notices and regulations to address issues such as exposure to volatile VDA prices, platform bankruptcies leading to frozen customer accounts, inadequate customer service and grievance resolution mechanisms, limited consumer understanding of investment risks and suitability, transaction-related problems during VDA buying, selling, or withdrawal, as well as occurrences of fraudulent transactions, theft, account breaches, and scams.

India must now follow suit. For this, the government should promptly identify major consumer protection issues that arise from the use of VDAs and proactively contain them through compulsory disclosures, governance and risk management practices and a robust grievance redressal procedure, which will collectively help in prioritising consumer welfare. To accomplish this, India can release a model advisory for consumer protection that delineates the role of all ecosystem participants, including platforms, exchanges, consumers and the government. This model advisory can draw from measures proposed by international institutions such as the IMF, FSB and BIS which ensure consumer protection.

Industry stakeholders and consumer advocacy groups can collaborate with the government in this endeavour. The industry can contribute by sharing best practices and offering technical expertise to address areas of concern to improve consumer well-being. Likewise, consumer groups can take the lead in launching comprehensive awareness campaigns and initiatives designed to protect consumers from potential risks.

By aligning with the rest of the G20 countries, India can harmonise its regulatory standards and work to collaboratively enhance consumer protection measures, in step with the rapidly evolving VDA landscape. Through consumer education and awareness on security measures, dispute resolution mechanisms, and vigilant monitoring, India can establish itself as a leader in responsible and consumer focused VDA governance.

This article is authored by Ashim Sanyal, CEO & secretary, Consumer VOICE and Kaushal Mahan, vice president, Chase India.

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