South African Reserve Bank Proposes Tougher Cryptocurrency Regulation

The South African Reserve Bank (SARB) has released a new consultation paper focusing on digital assets in the country as part of an Intergovernmental FinTech Working Group (IFWG), which includes the National Treasury, the South African Revenue Service (SARS), the Financial Sector Conduct Authority (FSCA) and the Financial Intelligence Centre (FIC).

The purpose of the consultation paper is to:

  • Provide an overview of the perceived risks and benefits associated with digital assets.
  • Discuss its current regulatory stance.
  • Present policy proposals to industry participants and stakeholders.
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The South African Reserve Bank is strengthening the chain of regulations. Consequently, the paper states that;

“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 for the line with the recent amendments to the Financial Action Task Force (FATF) Recommendations,”

The South African reserve bank defines cryptocurrency as follows;

“Crypto assets are digital representations or tokens that are accessed, verified, transacted, and traded electronically by a community of users. Crypto assets are issued electronically by decentralised entities and have no legal tender status, and consequently are not considered as electronic money either. It therefore does not have statutory compensation arrangements. Crypto assets have the ability to be used for payments (exchange of such value) and for investment purposes by crypto asset users. Crypto assets have the ability to function as a medium of exchange, and/or unit of account and/or store of value within a community of crypto asset users.”

The consultation paper points out to one of the most pertinent reasons why crypto assets are challenging to regulate, which is because they operate at a global level and could potentially be classified under various economic functions. The consultation paper also sets out proposals for a regulatory response to various digital asset activities.

Amid increasing crypto scams and digital assets that decide to self-regulate themselves, the South African Reserve Bank has decided to widen its stance on cryptocurrencies, while not imposing a crypto ban. The Reserve Bank further commented;

“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. South African authorities, therefore, reserve the right to amend their policy stance should crypto assets pose a material risk to their respective regulatory mandates.”

Public comment is open until 15 February 2019 via email to [email protected]

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The consultation paper can be read here.

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