The South African Reserve Bank is set to introduce regulations next year that will classify and treat cryptocurrencies as financial assets to balance investor protection and innovation.
The use of cryptocurrencies in South Africa is in good health, since it is estimated that around 13% of the population owns some type of cryptocurrency, according to a study by the Luno exchange. With more than six million people in the country exposed to cryptocurrencies, the regulation of the space has been for long a topic of conversation.
Currently, companies or individuals who wish to provide cryptocurrency-related brokerage or advisory services must be recognized as financial service providers. This implies meeting a series of requirements to comply with the global guidelines established by the Financial Action Task Force.
The budget revision of the South African National Treasury, published in February 2022, formally introduced the measure of declaring cryptocurrencies as financial products. The state also plans to improve the supervision and notification of cryptocurrency transactions to comply with exchange regulations in the country.
The Deputy Governor of the South African Reserve Bank, Kuben Chetty, has now confirmed that new legislation will be introduced within the next 12 months, speaking in an online series organized by local investment firm PSG on Tuesday. Cryptocurrencies will come under the purview of the Financial Intelligence Center Act (FICA).
This is significant as it will allow the sector to be monitored for money laundering, tax evasion and terrorist financing, which has been a much-debated by-product. of the decentralized nature of cryptocurrencies and Blockchain technology.
Chetty outlined the path that the SARB will take in the next 12 months to introduce this new regulatory environment. First, it will declare cryptocurrencies as a financial product, which will allow their inclusion in the list of the Financial Intelligence Center law.
Next, a regulatory framework for exchanges will be developed that will include certain know-your-customer (KYC) requirements, as well as the need to comply with tax and foreign exchange control laws. Exchanges will also be required to issue a “health warning” to highlight the risk of losing money.
Chetty noted that the SARB’s attitude toward the industry has changed a lot in 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, [las criptomonedas] they are not a currency, but an asset. It is something that can be traded, it is something that is created. Some are supported, some are not. Some may have genuine backing, real economic activity.”
The Lt. Governor insisted that the SARB did not consider cryptocurrencies to be a form of currency, given the perceived inability for everyday use in retail and the associated volatility.
Chetty agreed that continued interest in this space creates a need to regulate the sector and facilitate its merger with mainstream finance. “in a way that balances enthusiasm and hype with necessary 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 phase of the Khokha Project involved using a blockchain-based system for clearing, trading, and settlement with a handful of banks that are part of the Intergovernmental Fintech Working Group (IFWG).
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