In regulating digital gold, India should look to Britain

Tue Apr 21 2026

Digital gold allows an investor to purchase and sell gold online without contact with the physical asset. Gold is bought at current prices then stored in vaults as an Electronic Gold Receipt (EGR). Once a customer has you brought electronic gold, it will be added in their vault account and can be sold when desired. It can also be converted to the physical gold upon redemption by vault manager.

Its convenience makes it an attractive investment. Despite warnings by the Securities and Exchange Board of India (SEBI) Indians purchased around 12 tonnes of digital gold between January and November 2025, with digital gold worth approximately ₹16,000 crore ($1.71 billion) traded.

But investors in India, the world’s largest market for digital gold, are not as well protected as they should be.

In 2021 the SEXB introduced the EGR framework to regulate the digital gold. When the buyer purchases gold, the vault manager converts it to EGR which represent ownership. This gets credited to the user’s demat account, where securities are kept in electronic format. They can use this to purchase and sell gold on any recognised platform and redeem it when desired. But its regulatory architecture remains asymmetrical.

The SEBI recognises EGRs as “security”, which trigger the vault manager obligations including storage, verification and record maintenance. Legitimate platforms work under the SEBI’s EGR framework with registered vault managers to secure storage, trading and redemption. But concerns remain about who will govern the audit and reports beyond conversion of physical to digital gold and investor protection mechanism.

Digital gold is already traded on fintech platforms beyond the jurisdictional reach of the SEBI, such as Paytm, Google Pay and PhonePe. In January 2026, digital gold worth ₹3,926 crore ($420,000) was traded via the Unified Payments Interface payments system. The existence of these parallel platforms for the sale and purchase of digital gold has created regulatory arbitrage as oversight depends upon type of platforms rather than nature of the commodity.

A regulatory gap emerges

The regulatory gap between regulated platforms such as NSE and unregulated ones such as Paytm is not an incidental phenomenon but one that stems from structural defaults. It has three overlapping failures. First is the narrow definition of EGR that exclude non-SEBI platforms. The second is the absence of regulatory mechanism in existing statues such as India’s Consumer Protection Act and IT frameworks, which are meant to address the issue of misleading advertisements but do not provide SEBI ex-ante oversight of digital transactions. The third the absence of the equivalence principle to capture digital gold irrespective of platform.

These failures have caused the unregulated platforms to enjoy cost arbitrage by avoiding the expense of fulfilling obligations and mandatory requirements of vault managers. By comparing India’s regulatory regime with that of Britain we argue that a functional approach for regulation of digital assets can eliminate platform-based loopholes and better ensure investor protection.

Rethinking digital gold: legal gaps

Fintech platforms such as Amazon Pay (Digital Gold), Google Pay or PhonePe offer various schemes for purchase and sale of digital gold and related products. The majority of these are not recognised by the SEBI, which means that any transaction taking place under this category does not qualify as EGR. The regulation and audit of such platforms remain as an inside process without any external transparency – unlike SEBI registered securities where vault managers ensure safe investments. This has two implications. Firstly, the pricing of digital gold on websites which may not represent the real market values. Secondly, investors are exposed to huge risk with no regulations. Ultimately, such investors are at risk of losing their savings.

Although the SEBI’s Prohibition of Fraudulent and Unfair Trade Practices Regulations (2003) prohibit the misleading statements in securities trading, their limited jurisdiction also exposes two-fold regulatory gap. The SEBI recognises the investor risk but lacks the authority to regulate those transactions. This raises the fundamental question of whether the existing frameworks are sufficient.

India’s consumer laws are not efficient to address the unregulated digital gold market. The Consumer Protection Act (CPA) regulates misleading advertisements. But it only activates when the harm has been caused. Unlike the SEBI’s preventive approach these provide the post-facto remedies, but remains largely reactive. The SEBI works on an audit mechanism with proper risk management before the actual occurrence of harm.

The Information Technology Act regulates electronic records ensuring validity of digital transactions. But its implication is limited to certain forms of transactions and does not extend to underlying investment scheme. Given that gold data is valid, compliance of the fintech platforms with these laws give the illusion of legitimacy – despite the absence of any specified regulations. If platforms are outside the jurisdiction of the SEBI, who will ensure if the risk and management was valid? The implication of this regulatory bypass is that investments may be insufficiently supervised, which increases the risk of false marketing and harm.

The continuation of these practices may result in arbitrage, where certain entries might exploit the regulatory gap between different frameworks. The SEBI has also issued a cautionary notice to prevent investors from making fraudulent investments. Thus, these regulatory arbitrage stems not only from legislative oversight but also from structural design that’s the narrow definition of EGRs, the jurisdiction limitation of the statues and absence of functional principle to regulate the digital gold uniformly.

How does India’s digital gold regime compare with Britain’s?

Authorities in Britain have grappled with the same tension. But its regime is an exemplary example of governance of digital assets. The Financial Conduct Authority (FCA) adopted the functional approach by using an existing statute, the Financial Service and Markets Act, to gain regulatory oversight over the digital assets including gold. Section 19 of the act specifically asserts that no regulatory activity can be carried without authorisation. That helps FCA maintain oversight of all the commercial activities of digital assets, largely eliminating unregulated markets. It restricts advertising to only those businesses which are authorised and regulated by the FCA, creating a safe market for investors free from misleading prices. By mandating disclosure obligations and adequate capital requirements, it has eliminated the anti-competitive environment. The same level playing field has been created between different platforms.

Unlike Britain’s single regulatory authority, India has fragmented ones. The SEBI only regulates securities such as EGRs. Therefore, fundamental regulation first requires the change in determination of digital gold from institutional form to economic function. Digital gold offered by fintech platforms and EGRs are functionally similar, as both enable investment in gold without physical possession. Here, the functionality equivalence will eliminate the platform-based arbitrage and establish the neutrality. Thus, the British model provides India with framework for adoption rather than a blueprint for replication.

Recommendations for reform

Fundamental reform of India’s digital gold market must address the narrow definition of EGR. Section 2(h)(ii) of the Securities and Exchange Board of India Act, 1992defines EGR as a security specified by the SEBI board without catering to platforms outside the ambit of the board. The SEBI must first broaden the ambit of EGR framework with proper regulations and compulsion to all the platforms dealing with digital gold to route their transactions through SEBI recognised exchange and vault managers. This will ensure their compliance with necessary pre-requisite conditions to facilitate the exchange of digital gold and ultimately lead to the same level playing field as exists in Britain. Secondly, a clear legal authorisation from the SEBI should be issued evoking its power under Section 11A, whereby the registration of all the investors purchasing and selling the gold shall be mandated.

This will help the board to supervise the actions of investors and protect them from fraudulent investments. There is a need for co-ordinated forum between the Reserve Bank of India, the central bank, and the SEBI. Payment platforms such as Paytm and Google Pay should obtain dual authorisation, where the Bank must approve the payment system operation and SEBI must account for digital gold investment products. This will eliminate the gap that allows such platforms to bypass oversight by presenting these services as payment feature.

Finally, the SEBI should maintain structured stakeholder engagement backed by timely consultation and feedback mechanisms. There should be regular meetings with the digital gold platforms, vault managers and all other related bodies to highlight and understand the challenges. A periodic regulatory review should be undertaken by the SEBI to critically analyse and fill the lacunae in governance of digital gold.

Source: https://blogs.lse.ac.uk/