Bitcoin is not a currency? South Africa to regulate crypto as a financial asset
The South African Reserve Bank is set to introduce regulations next year that will see cryptocurrencies classified and treated as financial assets to balance investor protection and innovation.
Cryptocurrency use in South Africa is in a healthy room, with around 13% of the population estimated to own some form of cryptocurrency, according to research from the global stock exchange Luno. With more than 6 million people in the country exposed to cryptocurrency, regulating space has long been a talking point.
Companies or individuals wishing to provide advice or brokerage services involving cryptocurrencies are currently required to be recognized as providers of financial services. This involves meeting a number of checkboxes to comply with global guidelines set by the Financial Action Task Force.
South Africa’s National Treasury budget review published in February 2022 formally introduced the move to declare cryptocurrencies as financial products. The government also plans to improve the monitoring and reporting of cryptocurrency transactions in order to comply with the country’s currency regulations.
The South African Reserve Bank’s Deputy Governor Kuben Chetty has now confirmed that new legislation will be introduced over the next 12 months, and spoke in a web series organized by the local investment company PSG on 12 July. This will see that cryptocurrencies fall under Financial Intelligence. The 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 hotly debated by-product of the decentralized nature of cryptocurrencies and blockchains.
Related: South Africa completes technical PoC for wholesale CBDC settlement system
Chetty highlighted the path that 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 their listing as a schedule under the Financial Intelligence Center Act.
Thereafter, a regulatory framework will be developed for stock exchanges that will include certain KYC requirements as well as the need to comply with tax and currency control laws. The exchanges will also be expected to issue a “health warning” to highlight the risk of losing money.
Chetty noted that SARB’s position on the sector has changed significantly over the past decade. About five years ago, the institution felt that there was no need for any regulatory supervision, but a gradual shift in the perception of defining cryptocurrencies as financial assets has changed this attitude.
“By all definitions, it is [cryptocurrencies] not a currency, it is a resource. It is something that is negotiable, it is something that is created. Some have support, others do not. Some may have a genuine underlying, real economic activity. “
The Deputy Governor insisted that SARB did not consider cryptocurrencies to be a form of currency given the perceived inability to use daily details and the associated volatility.
Chetty agreed that continued interest in the space creates a need to regulate the sector and facilitate its merger with mainstream finance “in a way that balances the tension and hype with the investor protection required”.
SARB also continues to explore the possible introduction of a digital central bank currency (CBDC), after completing a technical proof-of-concept in April 2022. The second phase of Project Khokha involved the use of a blockchain-based system for clearing, trading and settlement with a handful of banks that are part of the Intergovernmental Fintech Working Group (IFWG).
