When SEBI (Securities and Exchange Board of India) revealed that gross sales left a bad mark on the Securities Contracts (Regulation) Guidelines (SCRR) 1957, the National Stock Exchange of India (NSE) called for tuning down the sale of digital gold by September 10, 2021.

This applies to all members including stockbrokers and wealth managers.

The move, which comes before the crucial festive season months when Indian clients typically turn into active buyers, has impacted the country's tiny but rapidly growing digital gold industry.

This has surfaced fear among traders regarding the industry’s future as well as its credibility in the eyes of financial regulators, especially that of SEBI’s and the Reserve Bank of India (RBI).

It’s probable that SEBI is concerned about the potential use of client funds by brokers in purchasing digital gold, as it’s said to view it as a non-broking business.

But other aspects such as lacking careful monitoring over companies that sell and store physical gold while virtual assets are allocated to the customers is also a major concern.

Currently, rumors have it that most leading exchange bodies in India have been issuing notices of the same.

On another page, new-age fintech brokers such as Upstox, Paytm Money, Groww including conventional brokers namely HDFC Securities and Motilal Oswal have an option for customers to pour money into digital gold.

It’s these companies whose dates are numbered to the said date to take down the product and announce to their respective customers pertaining the same. These companies, though not under any financial sector regulator, are said to have a self-regulatory audit and diligence mechanism.

This move came off as thunder from a blue sky to fintech businesses Augmont Gold Ltd, MMTC-PAMP India, and Digital Gold India, who have built business models around facilitating the gold acquisition and selling online in conjunction with metal and gold firms.

Customers are now said to buy gold as a digital asset for as little as one rupee. The gold businesses then keep an identical amount of gold in their vaults, backed by a virtual certificate of purchase.

According to Renisha Chainani, Head of Research, Augmont Gold, the NSE circular is only applicable to NSE members. This circular has been published in response to the regulator, Sebi, issuing clarifications on NSE members offering digital gold. All of these partners must work within the framework and criteria set forth by Sebi from time to time.

Customers can buy digital gold through non-broking systems like PhonePe and Google Pay, which are unlikely to be harmed by this move. In the words of Deepak Abbot, cofounder, India gold, a gold loan fintech, the number of customers having more than Rs 100 in digital gold might be in the range of 5-6 million. This could be a sign that the regulator is considering enacting regulations for the industry. Currently, neither the Sebi nor the RBI has jurisdiction over these transactions.