South Africa’s Reserve Bank will regulate cryptocurrencies as financial assets, with new legislation due within the next year. To balance investor safety and innovation, the South African Reserve Bank plans to adopt laws next year that will classify and regulate cryptocurrencies as financial assets.
According to statistics from global exchange Luno, cryptocurrency use in South Africa is robust, with over 13% of the population believed to own some form of cryptocurrency. With over six million people in the country having cryptocurrency exposure, cryptocurrency regulation has long been a topic of discussion.
Companies or individuals seeking to provide cryptocurrency advice or intermediary services must currently be registered as financial service providers. This entails checking a number of boxes in order to comply with global rules established by the Financial Action Task Force.
The decision to designate cryptocurrencies as financial products was formally included in South Africa’s National Treasury budget review announced in February 2022. In order to comply with the country’s exchange legislation, the state also intends to improve the monitoring and reporting of cryptocurrency transactions.
South African Reserve Bank deputy governor Kuben Chetty confirmed on Tuesday that new legislation will be presented over the next 12 months during an online series held by local investment firm PSG. As a result, cryptocurrencies will be subject to the Financial Intelligence Centre Act (FICA).
This is significant because it will allow the industry to be monitored for money laundering, tax evasion, and terrorism financing, which has been a hotly contested result of cryptocurrencies and blockchains’ decentralized nature.
Chetty emphasized the path that the SARB will pursue over the next 12 months to implement this new regulatory environment. To begin, it will deem cryptocurrencies to be financial products, allowing them to be listed as a schedule under the Financial Intelligence Centre Act.
Following that, a regulatory framework for exchanges will be devised, which will include Know Your Customer (KYC) requirements as well as the need to comply with tax and exchange control legislation. Exchanges are also anticipated to issue a “health warning” to emphasize the possibility of losing money.
The SARB’s stance toward the sector, according to Chetty, has shifted dramatically during the last decade. The institution believed there was no need for regulatory control five years ago, but a steady movement in perspective to identify cryptocurrencies as financial assets has reversed that stance:
“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 reiterated that the SARB did not consider cryptocurrencies to be a form of currency due to their apparent incapacity to be used in ordinary retail transactions and the related volatility.
Chetty acknowledged that the sector’s sustained interest necessitates regulation and facilitation of its integration with mainstream finance “in a way that balances the enthusiasm and hype with the investor protection required.”
The SARB is also investigating the possibility of introducing a central bank digital currency (CBDC), having recently achieved a technical proof-of-concept in April 2022. The second stage of Project Khokha includes the use of a blockchain-based system for clearing, trading, and settlement with a small group of institutions from the Intergovernmental Fintech Working Group (IFWG).