Today's Headlines

Today's Headlines - 28 April 2023

EU’s new crypto-legislation

GS Paper -2 (International Relations)

The European Parliament, the legislative body of the 27-country block European Union, has approved the world’s first set of comprehensive rules to bring largely unregulated cryptocurrency markets under the ambit of regulation by government authorities. The regulation called the Markets in Crypto Assets (MiCA) will come into force after formal approval by member states.

Need of the regulation:

  • About 22% of the global crypto industry was concentrated in central, northern, and Western Europe, which received $1.3 trillion worth of crypto assets.
  • A comprehensive framework like MiCA for 27 countries in Europe not only harmonises the crypto industry but also gives the EU a competitive edge in its growth compared to the U.S. or the U.K. which lack regulatory clarity.
  • As investments and the size of the crypto industry grow, European and other regulators have felt the need to bring governance practices in crypto firms to ensure stability and financial sector-like rout and contagion.

Coverage of assets under the MiCA:

  • The MiCA legislation will apply to ‘crypto assets’, which are broadly defined in the text as “a digital representation of a value or a right that uses cryptography for security and is in the form of a coin or a token or any other digital medium which may be transferred and stored electronically, using distributed ledger technology or similar technology”.
  • It implies that it will apply not only to traditional cryptocurrencies like Bitcoin and Ethereum but also to newer ones like stable coins.

Stable coins:

Stable coins are digital tokens that aim to stay pegged in value with a more stable asset such as a fiat currency like the U.S. dollar or other stable cryptocurrencies.

MiCA will establish new rules for three types of stablecoins:

  • Asset-referenced tokens, which are linked to multiple currencies, commodities, or cryptocurrencies,
  • E-money Tokens, which are linked to a single currency
  • Utility tokens, which are intended to provide access to a good or service that, will be supplied by the issuer of that token.

Assets out of purview of MICA:

  • MiCA will not regulate digital assets that would qualify as transferable securities and function like shares or their equivalent and other crypto assets that already qualify as financial instruments under existing regulation. It will also exclude non fungible tokens (NFTs).
  • MiCA will also not regulate central bank digital currencies issued by the European Central Bank and digital assets issued by national central banks of EU member countries when acting in their capacity as monetary authorities, along with crypto assets-related services offered by them.

What are the new rules?

  • MiCA will impose compliance on the issuers of crypto assets, who are defined as the “legal person who offers to the public any type of crypto-assets”.
  • It will apply to crypto-asset service providers (CASPs) providing one or more of these services. The regulation prescribes different sets of requirements for CASPs depending on the type of cryptoassets.
  • MiCA requires crypto companies to send information of senders and recipients of cryptoassets to their local anti-money laundering authority, to prevent laundering and terror financing activities.

How is crypto regulated in India?

  • India is yet to have a comprehensive regulatory framework for crypto assets. Draft legislation on the same is reportedly in the works.
  • The Indian government has taken certain steps to bring cryptocurrencies under the ambit of specific authorities and taxation. In the Union Budget for 2022, the Finance Ministry said that cryptocurrency trading in India has seen a “phenomenal increase” and imposed a 30% tax on income from the “transfer of any virtual digital asset.”
  • In March this year, the government placed all transactions involving virtual digital assets under the purview of the Prevention of Money Laundering Act (PMLA).

 

SC modifies judgement on eco-sensitive zones

GS Paper -3 (Environment)

The Supreme Court modified its judgment to have mandatory eco-sensitive zones (ESZ) of a minimum one kilometre around protected forests, national parks and wildlife sanctuaries across the country. A Bench led by Justice B.R. Gavai reasoned that ESZ cannot be uniform across the country and has to be “protected area-specific”.

More about the news:

  • On June 3, 2022, the apex court had ordered the 1-km buffer zone for protected areas to act as a “shock absorber”.
  • The Centre and several States, including Kerala, had returned to the apex court seeking modification of the June 2022 judgment, saying the judicial direction affected hundreds of villages in the peripheries of forests.
  • While agreeing, the court said “the purpose of declaring ESZs is not to hamper the day-to-day activities of the citizens. If the direction as issued is continued, it would certainly hamper the day-to-day activities of the citizens residing in ESZs.

Issues with earlier judgement:

  • It said a stringent observance of the June 2022 judgment would cause more harm than good. For one, man-animal conflict would only increase rather than abate.
  • It act as a hindrance to development activities, if the government decides to construct schools, dispensaries, anganwadi, village stores, water tanks and other basic structures for improvement of the life of the villagers.
  • It will be impossible for forest departments to conduct eco-development activities around national parks and sanctuaries.
  • Centrally sponsored Scheme-Integrated Development of Wildlife Habitats, which includes assistance for eco-development activities, would come to a standstill.
  • It would also affect certain projects of national and strategic importance such as construction of national highways, railways, defence-related infrastructure, etc.

Caveats in the judgement:

The court made it clear that “mining within the national park and wildlife sanctuary and within an area of one kilometre from the boundary of such national park and wildlife sanctuary shall not be permissible”.

Flashback:

ECO-SENSITVE ZONE:

  • Eco-Sensitive Zones (ESZs) or Ecologically Fragile Areas (EFAs) are areas in India notified by the Ministry of Environment, Forests and Climate Change (MoEFCC), Government of India around Protected Areas, National Parks and Wildlife Sanctuaries.
  • The purpose of declaring ESZs is to create some kind of "shock absorbers" to the protected areas by regulating and managing the activities around such areas.
  • They act as a transition zone from areas of high protection to areas involving lesser protection. As per the National Wildlife Action Plan (2002-2016), issued by the Union Ministry of Environment, Forest and Climate Change, land within 10 km of the boundaries of national parks and wildlife sanctuaries are to be notified as eco-fragile zones or Eco-sensitive Zones.

 

Rising sea level impacts

GS Paper -1 (Geography)

The World Meteorological Organization (WMO) has found that the world’s sea level is rising at an unprecedented rate, portending potentially disastrous consequences for the weather, agriculture, the extant groundwater crisis, and social disparities.

More about the news:

  • It noted that accelerating sea-level rise, record-breaking increases in the concentration of greenhouse gases as well as glacier loss, sustained drought-like conditions in East Africa, record rainfall in Pakistan, and unprecedented heatwaves that struck Europe and China in 2022.
  • Droughts, floods and heat waves affected communities on every continent and cost many billions of dollars. Antarctic sea ice fell to its lowest extent on record and the melting of some European glaciers was, literally, off the charts.

How much is the sea rising?

  • Since the 1990s, scientists have been measuring sea-level rise using satellite altimeters. The rate of global mean sea-level [GSML] rise has doubled between the first decade of the satellite record and the last.”
  • The rate of sea-level rise was 2.27 mm/year in 1993-2002; it shot up to 4.62 mm/year in 2013-2022.

Causes of accelerated sea-level rise:

  • According to the report, in 2005-2019, loss of glaciers and ice sheets contributed 36% to the GSML rise.
  • As increasing concentrations of carbon dioxide and other greenhouse gases drive global warming, 90% of the ‘extra’ heat is stored in the oceans. This leads to ocean warming.
  • As the ocean heats up, it undergoes thermal expansion, which in turn leads to a rise in the GSML. One measure of ocean warming is the ocean heat content (OHC).
  • Ocean warming contributed 55%, and changes in the storage of land water contributed less than 10% to the rising sea levels.

Problems with sea-level rise:

  • It will cause changes in land cover added that as rising seas swallow more of the land cover, particularly in coastal areas, coastal communities will face an “acute shortage of land for human use”.
  • Weather formations like cyclones are known to typically originate in the open seas, the chances of cyclones could increase, affecting coastal communities and leading to large economic liabilities for tropical countries like India and South Africa, which have high population densities.
  • As the GSML continues to rise, more seawater could seep into the ground, leading to the groundwater, which is usually freshwater; turning more and more saline can exacerbate water crises in coastal areas as well as agriculture in adjacent regions.
  • The Sundarbans delta in West Bengal, the world’s largest mangrove area, rising sea levels and coastal erosion, due to loss of land and sediment from coastal areas, has left more islands submerged under water, and that in turn has forced members of local communities to migrate.

 

RBI’s draft guidelines on penal charges for loans

GS Paper -3 (Economy)

Reserve Bank of India (RBI) introduced for public consultation draft guidelines for the levy of ‘penal charges’ instead of the existing ‘penal interest’ imposed by banks on customers for defaulting on loan payments.

More about the news:

The guidelines were issued following an announcement made on Developmental and Regulatory Policies.

About draft guidelines:

  • Penalties charged for default on interest payments or non-compliance of material terms and conditions of loan contract by the borrower would now be accrued as ‘penal charges’ instead of ‘penal interest’. The latter was levied in addition to the rate of interest charged on borrowings.  
  • Lending entities would not be able to levy an ad-hoc additional penal rate of interest over and above the applicable rate of interest
  • RBI also stated that there shall be no capitalisation of penal charges, it shall be levied separately and not be added to the principal outstanding amount.  
  • The quantum of penal charges must be proportional to the defaults or non-compliance of material terms and conditions of a loan contract up to a certain threshold. It will be determined by the lending entities themselves and must not be discriminatory within a particular loan/product category. 
  • The penal charges for loans to individual borrowers, for non-business purposes, cannot be higher than the penal charges applicable to companies and organisations. This must be disclosed to the customers in the loan agreement and the Key Fact Statement (KFS).

Need of such draft guidelines:

  • The intent behind levying penal interest/charges was to inculcate credit discipline among borrowers through negative incentives and in turn, ensure fair compensation to the lender.
  • The present guidelines state that regulated entities have operational autonomy to formulate board-approved policy for levy of penal interest which must be “fair and transparent”.  
  • RBI mentioned in its ‘Statement on Developmental and Regulatory Policies’ that supervisory reviews had indicated divergent practices in the levy of penal interest. These were excessive in certain cases, leading to customer grievances and disputes.  

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