South Africa to Regulate Crypto as Financial Asset
The South African Reserve Bank (SARB) is set to introduce fresh regulations next year that will see Cryptocurrencies classed and treated as Financial Assets to stabilize investor protection and innovation.
Cryptocurrency use in South Africa is growing at a healthy pace, with around 13% of the population estimated to own cryptocurrency in some form, according to research from global Crypto Exchange Luno. With approximately more than six million people in the country having Cryptocurrency exposure, legal framework of the space has long been a talking point.
Retail or institutional experts looking to provide advice or intermediary services involving digital currencies are currently required to be recognized as financial services providers in the country. This involves ticking a number of checkboxes to comply with global guidelines set out by the Financial Action Task Force.
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South Africa’s National Treasury budget review published in early 2022 formally introduced the step to declare Cryptocurrencies as financial products. The nation also plans to enhance the monitoring and reporting of Digital Currency and assets transactions to comply with exchange regulations in the country.
SARB deputy governor Kuben Chetty, speaking in an online series hosted by local investment firm PSG on Tuesday, has now confirmed that a new legal framework will be introduced in the next 12 months. This will see Cryptocurrencies fall under the roof of the Financial Intelligence Centre Act (FICA).
This is a significant step, as it will allow the crypto space to be monitored for money laundering, tax evasion and terrorism financing, which has been a debated byproduct of the decentralized nature of Digital Currencies and blockchains.
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Chetty further highlighted the road that the SARB will take over the next 12 months to introduce the new regulatory guidelines. Firstly, it will declare digital currencies as a financial product which allows their listing as a schedule under the Financial Intelligence Centre act.
Post that, a regulatory framework will be developed for exchanges which will include certain Know Your Customer (KYC) mandatory requirements as well as the need to meet tax and exchange control laws. Exchanges will also be expected to issue a ‘health warning’ to highlight the risk of losing money.
Chetty noted that the SARB's stance toward the Cryptocurrency space has changed significantly over the past decade. Some five years ago the institution thought there was no need for any legal oversight, however a gradual shift in perception to define cryptocurrencies as financial assets has changed that attitude:
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“By all definitions, it’s [cryptocurrencies] not a currency, it’s an asset. It’s something that is tradable, it’s something that is created. Some have backing, others do not. Some may have a genuine underpinning, real economic activity.”
The deputy governor clarified that the SARB still did not regard cryptocurrencies as a form of currency, given the perceived inability for everyday retail use and the associated high volatility.
Chetty agreed that continued interest in the Cryptocurrency space creates a need to regulate the market and facilitate its merge with mainstream financial assets “in a way that balances the excitement and hype with the investor protection required.”
The central bank will also continue to explore the possible introduction of a Central Bank Digital Currency (CBDC), having recently completed a technical proof-of-concept in April 2022. The second stage of ‘Project Khokha’ involved using a blockchain-based system for clearing, trading and settlement with a handful of financial institutions that form part of the Intergovernmental Fintech Working Group (IFWG).
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