Summary: This FIG Paper examines recent global regulatory and market developments in digital assets, including Hong Kong’s first stablecoin licences, countries finalising their digital assets regulatory frameworks, and BIS warnings on stablecoin-driven dollarisation. It then analyses India’s evolving response through the revised FIU-IND registration regime, tightening tax reporting and enforcement trends, and the RBI’s evolving regulatory response to stablecoins.
Since our last VDA Series publication, global stablecoin supply has crossed USD 320 billion, Hong Kong has granted its first stablecoin licences, and the Bank for International Settlements (“BIS”) has flagged systemic risks from stablecoin growth. Jurisdictions are racing to build comprehensive regulatory frameworks. This FIG paper examines these developments and India’s response – its registration regime for virtual digital asset service providers (“VDASP”), tightening tax reporting requirements, and regulatory signals from the Reserve Bank of India (“RBI”).
GLOBAL DEVELOPMENTS
The shift towards formal regulation is unmistakable. The EU’s MiCA entered full force in December 2024. The US GENIUS Act targets implementation by 2027. Consultation on a comprehensive crypto-asset regulation is underway in the UK, with target implementation by 2027. Hong Kong, Singapore, and the UAE have each established licencing regimes for digital asset service providers and stablecoin issuers.
Hong Kong Grants First Round of Stablecoin Licences under New Regime
The Hong Kong Monetary Authority (“HKMA”) has granted its first licences for fiat-backed stablecoin issuance under Hong Kong’s regime, enacted in August 2025. HSBC and Anchorpoint Financial (a joint venture between Standard Chartered, Animoca Brands, and Hong Kong Telecommunications) are now authorised to issue HKD-backed stablecoins for cross-border payments, local transactions, digital asset trading, and tokenised investments, with launches expected in H2 2026. Of 36 applications, only 2 have been approved, consistent with the HKMA’s ‘open but cautious’ posture.[1]
Conferring inaugural licences on established banking institutions signals a deliberate stability-first approach, consistent with Japan’s model, where only licensed financial institutions are authorised to issue stablecoins.
Kenya’s Latest Regulatory Model
Most recently, Kenya has enacted the Virtual Asset Service Providers Act, 2025 (Cap. 491B) (“VASP Act”), and completed public consultation on its Draft Regulations 2026.[2]
The VASP Act adopts a twin-peaks model: the Central Bank of Kenya regulates payment VDASPs, wallets, and stablecoin issuers; the Capital Markets Authority regulates exchanges, brokers, investment advisors, and tokenisation platforms, resolving jurisdictional ambiguity that plagues comparable frameworks elsewhere. Client asset segregation, pre-approval for offerings, and post-issuance intervention powers are built in. Gaps remain, notably the absence of a Travel Rule and cross-border recognition mechanisms, but the operational detail, consumer protections, and prudential norms provide a credible regulatory foundation.
Global Stablecoin Growth and Monetary Sovereignty Risk
The BIS published a paper in May 2026, examining stablecoin interconnectedness with the broader financial system[3]. The finding: stablecoins have evolved from niche crypto-trading instruments into payments infrastructure spanning banking, funds, insurance, and securities. Since 98% of stablecoin value is USD-denominated, implications for international monetary hierarchies are significant and growing.
For emerging markets and developing economies (“EMDE”), this presents a sharp dual challenge: stablecoins reduce cross-border payment costs and enhance financial inclusion, but rapid adoption of foreign-currency stablecoins risks eroding monetary sovereignty, complicating capital controls, and creating new instability channels. The conditions that make stablecoin-driven dollarisation most likely, namely high inflation, exchange rate volatility, and weak institutional frameworks, are precisely the conditions that constrain the capacity to respond.
INDIA IMPACT
A Market Served by 54 Registered Entities
As of March 9, 2026, 54 VDASPs have registered with the Financial Intelligence Unit of India (“FIU-IND”) as reporting entities since registration became mandatory under the Prevention of Money Laundering Act, 2002 (“PMLA”), in March 2023.[4] In the same period, FIU-IND directed the takedown of 53 unregistered virtual digital asset (“VDA”) exchanges. India has over 100 million retail crypto users[5] who are served by just 54 registered entities (3 VDASPs no longer operate).
Registration requirements introduced in September 2025 have moved beyond paper policies. They now include in-person meetings, live walkthroughs of KYC systems, CERT-In cybersecurity audits, and PACT certificates from registered partners. VDASPs must evidence sanctions screening, transaction monitoring, blockchain analysis, and Travel Rule compliance. Policy direction is towards tighter compliance expectation, than outright prohibition. Multiple entities, onshore and offshore, are currently undergoing registration with FIU-IND.
Yet registration does not constitute endorsement or licensing, as the Ministry of Finance has clarified. Users continue to bear the risks of legal ambiguity, with recent cases of fraudulent operations by unscrupulous actors posing as registered VDASPs. A comprehensive regulatory framework would formally protect consumers, address systemic risks, and eliminate fly-by-night operators. Hong Kong, Singapore and Kenya demonstrate that workable frameworks are achievable within existing institutional architectures.
India could also implement a multi-regulator model: the RBI for financial services regulation, SEBI for securities intermediation, and FIU-IND for anti-money laundering oversight, with licencing extended to regulated financial institutions, supported by VDASPs for technology and innovation.
Enforcement Trends
In addition to the FIU-IND’s enforcement efforts, other law enforcement agencies are actively targeting illicit VDA-related activity.
The ED has publicly stated that cryptocurrency frauds, terror financing, cyber-enabled crimes, and narcotics trafficking are its new focus areas.[6] Alongside, regional Cyber Crime Police units are investigating crypto-related frauds, payment transactions, and are engaging technical experts to assist with these proceedings. Tax authorities such as the Directorate General for GST Intelligence (DGGI) have been issuing show cause notices to both offshore and onshore VDA exchanges for goods and service tax (GST) compliance.
Several VDA exchanges and stablecoin service providers have been issued notices to share information, client details, system data, and show cause before enforcement agencies related to VDA frauds and their tax liability for Indian operations. Developing enforcement response strategies and a playbook for dealing with statutory authorities is now crucial for VDA players, given the heightened scrutiny.
Tightening Tax Compliance – India’s New Tax Rules
On March 5, 2026, India’s Central Board of Direct Taxes notified amendments to the Income-tax Rules, effective January 1, 2026, bringing crypto-assets, central bank digital currency (“CBDC”), and electronic money products within the financial account reporting framework.[7] All VDASPs and certain financial institutions must now report transactions and holdings to tax authorities, pursuant to India’s commitment to implementing the OECD’s Crypto Asset Reporting Framework (“CARF”) by April 2027. This creates immediate reporting obligations and tax liabilities requiring new compliance protocols. Under CARF, user identities and transaction details must be shared across participating jurisdictions.
In the post-March 2026 regulatory milieu, the once-favoured “intermediary” defence under indirect tax to not discharge goods and service tax (“GST”) appears increasingly enfeebled, compelling VDA exchanges, wallet operators, token platforms and ancillary digital facilitators to re-evaluate their indirect tax exposure with far greater sobriety. The applicability of Online Information and Database Access or Retrieval (OIDAR) provisions in VDA-linked offerings involving automated digital interfaces, algorithmic facilitation, cloud-based execution, or cross-border digital access may expose offshore operators to GST registration and tax obligations in India.
While no formal governmental notice has yet emerged, industry corridors increasingly acknowledge a quiet but deliberate convergence between the FIU-IND and GST intelligence formations, including the Directorate General of GST Intelligence (DGGI), to identify potential tax leakages within the digital asset ecosystem. In this climate of heightened scrutiny, VDASPs would be well-advised to comprehensively assess GST applicability before unveiling any novel product architecture or transactional model.
Cross-Border Payments Reform and the Case for Collaboration
Stablecoins’ rapid adoption in cross-border payments, specifically inward remittances, is a direct consequence of structural limitations of correspondent banking: multi-tier intermediation, protracted settlement, and costs falling disproportionately on retail senders. Stablecoins offer near-instantaneous finality at materially lower costs.
The RBI’s response: ‘Guidelines to facilitate faster cross-border inward payments’, issued on April 9, 2026 (“Guidelines”), aligned with its Payments Vision 2025 and the G20 roadmap for cheaper, faster, more transparent cross-border payments.[8] Effective October 9, 2026, the Guidelines prescribe near real-time nostro reconciliation at one-hour intervals, same-day crediting, straight-through processing (STP) for remittances to individual residents, and a digital interface for document submission and monitoring.
The Guidelines directly target the friction driving adoption of stablecoin-based alternatives. For a USD 230 billion inward remittance market, this makes traditional rails more competitive.
At a broader policy level, the RBI’s warning of systemic risks from stablecoins, in its Financial Stability Report 2025,[9] has been accompanied by a concerted push for the Digital Rupee (e-₹). This focus on CBDC is consistent with India’s de-dollarisation objectives, also evident in its proposal for a BRICS-backed stablecoin at the BRICS Summit 2026 (though traction remains limited).[10] The RBI has expanded participation in its retail CBDC pilot to fintechs to improve Digital Rupee adoption.[11] This creates an opportunity for VDA players in India to pivot and collaborate with the regulator and traditional financial institutions, offering technical know-how, operational solutions, and global expertise, to expand CBDC use cases and drive retail adoption, given there is sufficient appetite for collaboration.
[1] Reuters, “Hong Kong grants first stablecoin licences to StanChart joint venture and HSBC”, April 10, 2026 (available here)
[2] National Treasury, Public Notice – Draft Virtual Asset Service Providers Regulations, 2026, March 17, 2026 (available here).
[3] Iñaki Aldasoro, Jon Frost and Hiro Ito, The impact of stablecoins on the international monetary and financial system, BIS Papers No. 170, May 2026 (available here).
[4] Shri Pankaj Chaudhary, Minister of State in the Ministry of Finance, Answer to Lok Sabha Unstarred Question No. 5805: Regulation of Virtual Digital Assets in the Country, Ministry of Finance, Department of Economic Affairs, March 30, 2026 (available here).
[5] Chainalysis, The 2025 Global Adoption Index: India and the United States Lead Cryptocurrency Adoption, September 2, 2025 (available here).
[6] Economic Times, ED says terror financing, crypto frauds new focus area for agency, May 1, 2026 (available here).
[7] Central Board of Direct Taxes, Income-tax (First Amendment) Rules, 2026 (available here).
[8] RBI ‘Guidelines to facilitate faster cross-border inward payments’, CO.DPSS.ID.No.S20/06-08-017/2026-2027, April 9, 2026 (available here).
[9] RBI, Financial Stability Report, December 2025 (available here)
[10] Reuters, “India’s central bank proposes linking BRICS’ digital currencies, sources say”, January 19, 2026 (available here).
[11] Economic Times, “Cred joins RBI’s digital currency project; first fintech to give access to CBDC”, January 28, 2025 (available here).