with the Minister of Finance latest statement When it comes to the RBI’s stance on banning crypto assets in India, Indian crypto regulation is firmly stuck within a gray area. On the one hand, a crypto bill is rumored to be in the works, pending its introduction into parliament for some time, but on the other hand, there are already many regulations governing the crypto space right now.
Of these existing regulations, the Consumer Protection (E-Commerce) Regulations 2020 (e-commerce rules) imposes certain obligations on crypto exchanges and crypto service providers to ensure that consumer rights are protected when purchasing and trading crypto assets.
in us previous article For Media Nama, we looked at the protections afforded to consumers under this law and how governments can set a practical consumer protection framework in the crypto space. With that in mind, this article seeks to answer two key questions: How are crypto exchanges classified under the e-commerce regulation, and how does this affect their obligations to consumers? ?
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different legal obligations
Since the definition of e-commerce under the Consumer Protection Act of 2019 includes not only physical goods but also services and digital products, the regulations established by law are limited to businesses offering virtual currency. It clearly applies to crypto exchanges as well as bodies. Decentralized financial services.
Although the Consumer Protection Act of 2019 only defines the term e-commerce, the e-commerce regulations make a broad distinction between two different types of e-commerce entities.
- An inventory e-commerce entity is a platform that owns an inventory of goods and services offered on the platform. In the context of crypto exchanges, this refers to exchanges that maintain a store of crypto assets that they distribute to their customers on their platform when transactions occur.
- A marketplace e-commerce entity is simply an entity that provides a digital platform to facilitate transactions between buyers and sellers. They do not own the goods or services sold on the platform. This could include crypto exchanges that do not own a store of crypto assets and are involved in the order matching process or his P2P exchanges.
This distinction results in different obligations for both inventory and marketplace e-commerce entities under the e-commerce regulations. This difference in duty is logical, as matters relating to marketplace e-commerce entities are functionally different from those relating to inventory e-commerce entities from the consumer’s perspective. For example, a marketplace e-commerce entity may not have much control over information about the products sold, but should be responsible for the transparency of the priority listing products and sellers. On the other hand, there is no problem with listing and prioritizing sellers on inventory e-commerce platforms, but the obligation to disclose accurate information about the products being sold increases.
Certain obligations imposed by e-commerce regulations, such as appointing a node officer and prohibiting unfair trading practices, are common to all cryptocurrency exchanges, while other obligations depend on whether the platform meets the market or inventory e-commerce definition. It depends on whether it applies to you. .
The obligations of an inventory e-commerce platform are very simple and include:
(i) display various relevant information regarding returns, refunds, fees, etc.;
(ii) not misrepresent the quality or characteristics of any goods or services;
(iii) to ensure the accuracy of advertising;
(iv) Prohibition of refusal to accept or withdraw defective goods or services, including for reasons such as delayed delivery;
On the other hand, the obligations of the marketplace e-commerce entity are split between the e-commerce platform and the merchant, with respective obligations falling on the party that actually controls the matters involved. Obligations on the e-commerce platform include commitments from sellers regarding the accuracy of information about the products sold, display of various information regarding seller details, returns, refunds, fees, chargebacks, etc., and maintenance of records. In addition, marketplace e-commerce entities must also display a description of key parameters and their relative importance in determining the ranking of products or sellers on the platform. This provision requires e-commerce platforms to disclose the parameters for determining the priority given to various merchants, but not to prioritize certain merchants or classes of merchants over others. is not prohibited.
Complexity stems from crypto exchange e-commerce rules
If a particular crypto exchange works on a system of P2P exchanges and trades on its own platform, this raises two issues under e-commerce regulations.
First, the e-commerce regulations impose various obligations on sellers, such as prior written agreements, appointment of complaints officers, etc. However, such obligations do not apply to sellers selling goods on e-commerce platforms. Valid only for work. Individuals who trade on P2P crypto exchanges as a hobby and not as a business are subject to the definition of the term seller or “seller of products” in section 2(37) of the Consumer Protection Act 2019 as they qualify and are subject to these terms. may not be necessary. Use of the phrases “in the course of business” and “involved in placing such products for commercial purposes.”
Second, interpreting the term seller only as defined in the Consumer Protection Act 2019 raises another potential issue. Because the e-commerce rules do not contemplate sellers other than those defined by law, it can be argued that non-commercial sellers are not permitted on e-commerce platforms at all, according to the e-commerce rules. Such an interpretation could force cryptocurrency exchanges to allow existing account holders to sell cryptocurrencies on their P2P platforms.
This is a very conservative interpretation of e-commerce rules, which not only affects the business model of P2P crypto exchanges, but also second-hand e-commerce sites such as OLX and Quikr. Another interpretation is that such e-commerce platforms do not meet the definition of a marketplace e-commerce entity and are merely considered an “e-commerce entity” as defined in Rule 3(b) of the E-Commerce Regulations. There is a thing While such an interpretation may appear reasonable, certain obligations of marketplace e-commerce entities, such as ensuring that sellers provide appropriate information regarding products, seller rankings, etc. Therefore, it would be desirable to have clarity regarding the status and obligations of such e-commerce platforms and sellers of such platforms.
The gray zone in which crypto exchanges, and especially P2P exchanges, are placed can create a situation where they are not subject to the regulations that apply across the e-commerce market spectrum. Given the volatile nature of crypto-assets, a highly volatile financial instrument, and the market’s susceptibility to schemes and fraud, all crypto-asset exchanges must adhere to the highest possible ethics in terms of consumer protection. Maintaining standards and regulatory standards is essential. It is therefore imperative that policymakers clarify the status of cryptocurrency exchanges under e-commerce regulations and reaffirm their obligations to be fair, transparent and act in the best interests of consumers. is.
Aman Nair is Policy Officer at the Center for Internet & Society (CIS) in India, with a focus on Fintech, Data Governance and Digital Collaborative Research. Vipul Kharbanda is a CIS Adjunct Fellow, focusing on the organization’s fintech research agenda.
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