The South African Reserve Bank is expected to introduce regulations next year that will see cryptocurrencies classified and treated as financial assets to balance investor protection and innovation.
Cryptocurrency usage in South Africa is in a healthy space, with around 13% of the population estimated to own some form of cryptocurrency, according to research from global exchange Luno. With over six million people in the country exposed to cryptocurrency, regulation of the space has long been a topic of discussion.
Companies or individuals seeking to provide advice or intermediary services involving cryptocurrencies must currently be recognized as financial service providers. This involves meeting a number of checkboxes to comply with the global guidelines set by the Financial Action Task Force.
South Africa’s National Treasury Budget Review released in February 2022 formally introduced the decision to declare cryptocurrencies as financial products. The state also plans to improve monitoring and reporting of cryptocurrency transactions to comply with foreign exchange regulations in the country.
South African Reserve Bank Deputy Governor Kuben Chetty has now confirmed that new legislation will be introduced within the next 12 months, speaking on Tuesday in an online series hosted by local investment firm PSG . This will see cryptocurrencies fall under the purview of the Financial Intelligence Center Act (FICA).
This is important, as it will allow the sector to be monitored for money laundering, tax evasion and terrorist financing, which has been a heavily debated by-product of the decentralized nature of cryptocurrencies and blockchains. of blocks.
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Chetty outlined the path the SARB will take over the next 12 months to introduce this new regulatory environment. First, it will declare cryptocurrencies as a financial product that allows them to be listed as a schedule under the Financial Intelligence Center Act.
Subsequently, a regulatory framework will be developed for exchanges, which will include certain know-your-customer (KYC) requirements as well as the need to comply with tax and exchange control laws. Exchanges will also have to issue a “health warning” to highlight the risk of losing money.
Chetty noted that the SARB’s attitude towards the sector has changed significantly over the past decade. About five years ago, the institution thought no regulatory oversight was necessary, but a gradual shift in perception to define cryptocurrencies as financial assets has changed that stance:
“By all definitions, it is [cryptocurrencies] not a currency, it is an asset. It is something that is exchanged, it is something that is created. Some have support, some don’t. Some may have a real underlying, a real economic activity.
The Deputy Governor insisted that the SARB does not consider cryptocurrencies to be a form of currency, given the perceived inability for everyday retail use and associated volatility.
Chetty agreed that the continued interest in the space creates a need to regulate the sector and facilitate its merger with traditional finance “in a way that balances excitement and hype with the required investor protection”.
The SARB also continues 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 the use of a system blockchain-based clearing, trading and settlement with a handful of banks that are part of the Intergovernmental Fintech Working Group (IFWG).