Some firms have appointed EY to audit their books and Grant Thornton India to conduct physical audits of their vaults, industry insiders said.
The move is part of the industry’s efforts to address concerns over the lack of formal regulatory oversight after markets regulator Sebi in last November observed that the sector is “unregulated.” “Appointment of auditors is part of this,” said a leading digital gold player, who did not want to be named. Leading players in the industry such as SafeGold, MMTC Pamp and Augmont Gold have come together and established Digital Precious Metals Assurance Council of India (DPMACI).
DPMACI has established standards to ensure that all consumer purchases are 100% backed by physical gold, with regular independent audits and grievance redressal mechanisms for consumers, industry insiders said.
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Digital gold is a form of investment that allows individuals to buy, hold and sell 24-karat physical gold digitally without taking immediate physical possession. Investors can purchase it online often starting with small amounts. The gold purchased is backed by physical gold of equivalent value, which is stored by the service provider in secure vaults on behalf of the buyer.
Digital gold remained among the higher-transacting categories on the Unified Payments Interface (UPI) in May, according to data from the World Gold Council.While the increase in import duty on gold to 15% from 6% on May 13 caused a drop in demand for a week, it picked up quickly, trade insiders said.
According to Kavita Chacko, research head at World Gold Council, transaction value of digital gold purchases through UPI fell 2% month on month to Rs 24 billion ($256 million) in May, while estimated volumes declined 5% to 1.54 tonnes.
Although purchases were well below the January peak – down 38% in value and 41% in volume – volumes remained above a 16-month average of 1.36 tonnes, suggesting that buying interest remains relatively strong.
Bhargav Vaidya, an independent gold trade analyst, said that for small/retail investors, digital gold is at par with buying a gold bar or investing through local jewellers. “It is important though that one looks at the credibility of the company before investing,” he said.
DPMACI has decided that all bullion sold must conform to recognised good delivery standards such as BIS or LBMA-certified benchmarks. An independent, reputed auditor should conduct physical audits of vaulted bullion at least twice each year. And audits should include random destructive testing to verify stated weight and purity within agreed tolerance limits.
India Bullion & Jewellers Association (IBJA) has also set up a self-regulatory division for the digital gold trade. “We are engaging with our members to discuss and decide the auditors,” said Surendra Mehta, national secretary of IBJA.