The Central Bank of South Africa has set out to introduce regulations next year that will classify and treat cryptocurrencies as financial assets to maintain a balance between investor protection and innovation.
The use of crypto-currency in South Africa is healthy, with some 13% of the population reported to own some form of cryptocurrency, according to a study by Luno exchange. With over six million people in the country exposed to cryptocurrencies, the regulation of this space has long been the subject of debate.
Companies or individuals wishing to provide advice or intermediation services regarding cryptocurrencies must be identified as current financial service providers. This involves filling in a number of checkboxes to comply with the global guidelines set by the Financial Action Task Force.
The South African National Treasury Budget Review released in February 2022 officially introduced the move to declare cryptocurrencies as financial products. The state also plans to strengthen the monitoring and reporting of cryptocurrency transactions to comply with exchange regulations in the country.
South African Central Bank Deputy Governor Kuben Chetty has now confirmed that new legislation will be introduced within the next 12 months, speaking at an online conference hosted by local investment firm PSG on Tuesday. Cryptocurrencies will therefore fall within the scope of the Financial Information Scheme (FICA) Act.
This measure is important because it will monitor the industry for money laundering, tax evasion and terrorist financing, which has been a widely debated by – product of the decentralized nature of cryptocurrencies and blockchain.
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Mr Chetty outlined how the SARB will take the next 12 months to introduce this new regulatory environment. First, it will certify cryptocurrencies as a financial product, allowing them to be listed in the legal schedule of financial information centers.
This will be followed by the development of a regulatory framework for exchanges, which will include certain customer information (KYC) requirements as well as the need to comply with tax and exchange control laws. Exchanges will also have to issue security alerts to highlight the risk of losing money.
Mr Chetty noted that the SARB ‘s attitude to the sector has changed significantly over the last decade. About five years ago, the institution thought there was no need for regulatory oversight, but that attitude gradually changed with a gradual shift in the attitude to defining cryptocurrencies as financial assets:
“It simply came to our notice then [les cryptomonnaies] it is not a currency, it is an asset. It is something that is interchangeable, it is something that is created. Some are supported, some do not. Some may have real economic support and activity ”.
The deputy governor argued that the SARB does not consider cryptocurrencies to be a form of money, given the perceived incompetence and daily volatility of individuals.
Mr Chetty agreed that the continuing interest in this space creates a need to regulate and facilitate the merger of traditional finance “in a way that balances excitement and hype with the required investor protection”.
The SARB also continues to explore the possibility of introducing a central bank digital currency (CBDC), having recently completed technical proof of concept in April 2022. The second phase of Project Khokha used a blockchain-based system to for clearing, trading and settlement with a handful of banks that are part of the Fintech Intergovernmental Working Group (IFWG).