South Africans continue to use cryptocurrencies and getting benefits of digital currency, but proposed regulations aim to introduce tougher regulations for crypto assets.
The South African Reserve Bank (SARB) has published a Consultation Paper on Policy Proposals for Crypto Assets in the country.
The SARB said that the purpose of this consultation paper is to:
- provide an overview of the perceived risks and benefits associated with crypto assets;
- discuss the available regulatory approaches; and
- present policy proposals to industry participants and stakeholders.
The bank said this consultation paper focuses exclusively on non-government or noncentral-bank-issued crypto assets and not on central bank digital currencies, including central bank cryptocurrencies.
Suggested regulatory approach to crypto assets in South Africa:
Given the related risk in crypto assets, the consultation paper proposes that South Africa moves to a higher level in 2019.
“In order to achieve anti-money laundering/combating the financing of terrorism (AML -anti-money laundering/CFT – combating the financing of terrorism) requirements, more specific requirements will be necessary in line with the recent amendments to the Financial Action Task Force (FATF) Recommendations,” the paper states.
SARB proposed ‘limited regulation’ for crypto assets in the country.
“At this proposed level, an official body places specific requirements on providers of
certain services in respect of crypto assets, without setting predefined conditions for formal authorisation to provide crypto assets-related products or services,” it said.
“Therefore, in terms of the proposed level, the FIC (Financial Intelligence Centre) will include crypto assets service providers as an accountable institution and, as such, the accountable institutions will be under legal obligation to comply with AML/CFT requirements in the FIC Act.
“However, the FIC does not set predefined conditions or market entry requirements for such business – therefore, South Africa will fall under a ‘limited regulatory’ framework.”
South Africa does not currently intend to ban the buying, selling or holding of crypto assets, or to ban crypto assets for payments.
However, because crypto assets are not recognised as a currency, customers may be exposed to harm in an unregulated environment, states the consultation paper.
“The decision not to ban the use of crypto assets is, however, based on the existing landscape and current levels of adoption, acceptance and use,” it said.
“South African authorities, therefore, reserve the right to amend their policy stance should crypto assets pose a material risk to their respective regulatory mandates.”
Principles for regulating crypto assets
The position paper states that regulatory response by South Africa to crypto assets will be undertaken in line with the principles stipulated below:
Risk-based approach: Regulatory actions will be undertaken in a manner and intensity that are commensurate with the level of risks posed while balancing potential benefits, also taking into account developments and requirements of relevant standard-setting bodies.
Technology neutral and primarily principles-based: In general terms, principles-based regulation means moving away from reliance on detailed, prescriptive rules and relying more on high-level, broadly stated principles. The term ‘principles’ can be used to refer to general requirements and express the fundamental obligations that all users should observe.
Unified regulatory approach: The regulatory approach adopted should be a joint determination by all regulatory authorities impacted. This paper aims to ensure clear and consistent regulatory treatment by relevant South African regulatory authorities, taking cognisance of international approaches.
The consultation paper also recommended that crypto assets remain without legal tender status and are not recognised as electronic money either.
The Intergovernmental FinTech Working Group (IFWG) and Crypto Assets Regulatory Working Group is of the view that regulatory action should not be delayed until the most appropriate regulatory approach has become clear, but to rather act and amend as innovation evolves.
The IFWG is further of the view that, for innovation to thrive, it does not necessarily mean that lax or even no regulation should be implemented.
“We must begin to consider the regulatory framework of the future.”
This consultation paper offers recommendations and is open to comment from the public until 15 February 2019.