Government Weighs Joint RBI and SEBI Oversight to Regulate India's 3 Billion Dollar Digital Gold Market

The Indian government, in coordination with the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), is in active discussions to introduce formal regulatory oversight for digital gold. The proposed framework is aimed at bringing the fast-growing segment under standard financial compliance, mandating verifiable physical bullion backing for every fractional gram sold to retail investors.

The domestic digital gold market has expanded into an estimated $3 billion asset class, driven by fintech platforms such as PhonePe, Google Pay, and Paytm, which partner with vaulting custodians and refiners like SafeGold, MMTC-PAMP, and Augmont. With investments starting from as low as ₹10 to ₹100, the product has onboarded over 80 million users across India. However, the absence of an overarching statutory regulator has raised growing concerns within policymaking circles regarding solvency risk, physical custody verification, and money laundering risks.

Key Regulatory Proposals Under Discussion

The Ministry of Finance is considering whether to classify digital gold contracts as "securities" under the Securities Contracts (Regulation) Act (SCRA) or establish a hybrid supervisory mechanism involving both banking and capital market watchdogs.

• Mandatory Bullion Backing: Vault custodians and issuers would be legally bound to hold an exact 1:1 physical reserve of audited 24-karat gold bars in insured vaults for every digital unit credited to customer accounts.
• Statutory Vault Audits: Platforms would face compulsory, periodic physical audits conducted by independent, empaneled auditing firms, eliminating reliance on voluntary self-certification.
• Formal Grievance Redressal: In the absence of regulator-backed complaint portals like SEBI SCORES or the RBI Ombudsman, the new framework would institutionalize consumer grievance resolution mechanisms.
• Capital Adequacy and Custody Standards: Issuing firms and platforms would be subjected to minimum capital adequacy norms, stringent know-your-customer (KYC) compliance, and segregated vaulting arrangements to safeguard assets from company liquidation.

Closing the Regulatory Grey Area

Historically, digital gold has occupied an ambiguous legal space. It is governed largely by basic contract law, consumer protection statutes, and Goods and Services Tax (GST) rules, but does not fall under securities or commodity derivative frameworks.

Recognizing this vulnerability, SEBI previously prohibited registered stockbrokers and registered investment advisers (RIAs) from promoting or selling digital gold on their platforms. The regulator issued multiple investor advisories clarifying that digital gold investments do not offer statutory investor protection schemes under capital market laws. In response to growing regulatory scrutiny, leading industry players formed the Digital Precious Metal Assurance Council of India (DPMACI) to implement voluntary standards, but policymakers view formal statutory oversight as essential given the sheer retail volume.

Impact on Retail Investors

For Indian retail buyers, formal regulation is expected to remove counterparty default anxieties, ensuring that their online gold holdings correspond directly to secure, vaulted precious metals. While regulated alternatives like Gold Exchange Traded Funds (ETFs) and Sovereign Gold Bonds (SGBs) already exist under SEBI and RBI purviews respectively, digital gold continues to appeal to micro-savers because it allows round-the-clock redemption and options for doorstep physical delivery in coins or bars.

Bringing the sector under the regulatory umbrella may introduce standard disclosure norms, transparent buy-sell spreads, and enhanced KYC obligations, creating a level playing field between unregulated fintech aggregators and traditional capital market instruments.

Tags: RBI SEBI Digital Gold Fintech Wealth Management Bullion Market