IFSCA forms a committee to suggest rules for asset tokenisation

The International Financial Services Centres Authority (IFSCA) has formed a seven-member committee of experts to develop regulations and policy guidelines for tokenisation of real and physical assets and also examine the legal validity of smart contracts. 

The latest move by the IFSCA, which is the regulatory body for international financial services centres of IFSCs, assumes significance since it is the first major step by any regulator to frame regulations for tokenisation of real and physical assets. 

Simply put, asset tokenisation refers to the process of creating digital tokens of assets using blockchain technology. In this particular case, the tokenisation is in the context of real and physical assets. 

Using asset tokenisation, one could also create fractional ownership of a physical asset like a commercial or residential real estate project or plot. 

The IFSCA committee would be chaired by Sharad Sharma, Co-founder, iSpirit Foundation and would include the following members: J Ranganayakulu, former Executive Director (Legal) of Securities and Exchange Board of India (Sebi); Matthew Chacko, Partner, Spice Route Legal; Neeraj Kulshrestha, MD & CEO, NSE IFSC Clearing Corporation; Sandeep Shukla, Prof in-charge, National Blockchain Project, IIT Kanpur; Nishant Nigam, Co-Founder, Dygnify Ventures and Praveen Kamat, General Manager, Capital Markets Department (IFSCA) who would also act as Member Secretary of the committee. 

Among other things, the committee has also been given the mandate to develop a risk management framework for digital tokens and examine the role of digital custodians in the asset tokenisation model and develop operational policy measures. 

Experts, meanwhile, view this as a significant development especially since it is coming from a regulatory body.  

“While our domestic regulators have not taken any position on tokens, IFSCA is willing to take steps to understand it and possibly provide a much-needed regulatory framework for fintechs in asset tokenisation space to foster better,” says Manish Kumar, Co-founder & CEO, RealX, a platform that enables investment in physical assets through digital tokens with legal rights to such ownership. 

“This will attract many start-ups both domestic as well as international and can be a game changer opportunity for attractiveness and acceptance of Gift City as a one of the most innovative International Financial Centres,” he added. 

IFSCA was established in April 2020 under the International Financial Services Centres Authority Act, 2019 and is headquartered at GIFT City, Gandhinagar in Gujarat—currently, GIFT IFSC is the maiden international financial services centre in India. 

The IFSCA is a unified authority for the development and regulation of financial products, financial services and financial institutions in the International Financial Services Centre (IFSC) in India.  

This assumes significance as prior to the establishment of IFSCA, the special zone was regulated by different regulatory bodies including Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (IRDAI) and Pension Fund Regulatory and Development Authority (PFRDA) that often led to a delay in policy making. 

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