The South African Reserve Bank (SARB) is planning to formulate policy frameworks in response to these emerging innovations such as private cryptocurrencies.
The Bank said in a statement on Tuesday that it will undertake various initiatives aimed at assisting in the formulation of appropriate policy frameworks for the possible regulation of FinTech.
The policy framework will This review will address regulatory issues such as clearing and settlement risks, exchange control impacts, monetary policy and financial stability, and other matters such as cybersecurity considerations.
Through collaboration with the other regulatory bodies, matters such as tax implications, consumer and investor protection, and money laundering activities will also be addressed, said the bank.
The SARB expects to complete the review in the second half of 2018.
The Bank added that the second aim of the policy framework is to investigate and decide on the applicability of innovation facilitators for the SARB.
‘Innovation facilitators’ is a collective term for innovation hubs, regulatory sandboxes and accelerators.
The SARB said it hopes to have concluded its assessment of the appropriateness of innovation facilitators by the third quarter of 2018.
“Clear and transparent eligibility and participation criteria will be developed to assist in the consideration of applicants into a regulatory sandbox,” said SARB.
The Reserve Bank added that the third objective is to launch Project Khokha which will experiment with distributed ledger technologies (DLTs).
It said the aim of this project is to gain a practical understanding of DLTs through the development of a proof of concept (POC) in collaboration with the banking industry.
The objective of the POC is to replicate interbank clearing and settlement on a DLT which will allow the SARB and industry to jointly assess the potential benefits and risks of DLTs, it said.
The POC involves the processing of wholesale payments using Quorum, an Ethereum enterprise DLT. The SARB is aware of multiple DLTs being experimented with globally.
ConsenSys (a world-leading expert on Quorum) has been selected as the technology partner that will assist the SARB in the design, setup of infrastructure and running of the POC.
“This does not imply a radical move to DLT for the country’s national payments infrastructure, but rather a structured approach to understand the implication of using a tokenised asset on DLT technology to transfer value,” said the Bank.
It added that a public report will be released to explain all the findings, risks and benefits of the associated project during the second quarter of 2018.
The SARB describes FinTech as technologies applied to financial services with the potential to disrupt current business models, applications, processes or products. In order to evaluate the regulatory implications of these innovations, a framework is used to assess the impact of these developments in terms of the underlying economic function or activity performed (e.g. deposit taking, payments, lending and investments) as opposed to the specific entity or technology being used.