South Africa is one of the leading countries in Africa with solid financial regulations. While the cryptocurrency market is relatively new, the country has taken huge strides in regulating the industry. In 2014, it cautioned citizens about the risk of crypto assets. The efforts to regulate the crypto market culminated with publishing a consultation paper in 2019.
Fast forward to 2021, the financial regulators have created a solid framework to regulate the growing crypto industry. This is after the African country was hit by several crypto scams such as the Mirror Trading international and Africrypt. Many say this is a must for every country to do since the crypto market is exponentially growing at a very fast pace. According to crypto analysts that provide crypto predictions in Africa, cryptocurrencies are not likely to step on the brakes in the upcoming years, just the opposite.
The regulation seeks to create surveillance systems and effective guidelines, such as the Know Your Customer (KYC) protocol.
New Position Paper
In June 2021, the Intergovernmental Fintech Working Group (IFWG) released a position paper with 25 recommendations. The IFWG brings together the South African Reserve Bank, National Treasury, Financial Intelligence, and South Africa Revenue Service.
The main aim of the position paper is to regulate the cryptocurrency ecosystem of the country. The recommendation seeks to revise the legal, regulatory, and policy position of crypto assets and activities and will be implemented in three phases.
Crypto Service Providers to Meet AML/CFT Requirements
Crypto assets and service providers (CASPs) will be regulated under the Financial Intelligence Centre Act. This means they will be required to register with FIC. In addition, service providers will be required to comply with AML/CFT provisions.
Other requirements include:
- Perform due diligence on customers and report cases of suspicious transactions of more than 25 000 Rands (roughly $1700). This recommendation aims to curb money laundering and financing terrorism.
- Keep client and transaction records, conduct system verification and identification.
- Monitor and report unusual and suspicious activities to the authorities.
Cross Border Crypto Transaction Monitoring By Central Bank
The position paper requires the SARB Financial Surveillance Department (FinSurv) to supervise and regulate cross-border crypto assets transactions. The regulatory framework allows the Crypto Asset Trading Platforms (CATP) to buy crypto assets from offshore markets and sell in the local market in line with the limits specified by FinSurv. In essence, the regulation places cryptocurrency trading platforms under the purview of relevant regulatory bodies.
Financial Sector Law
According to the recommendations, crypto assets will be recognized as financial products. Therefore the CASPs will be required to facilitate regulatory adherence as licensed intermediaries. This measure will reduce the investment risk associated with unscrupulous entities.
New Position Is Not Endorsement Of Crypto Assets
The IFWG has reiterated the new regulations frameworks should not be construed as an endorsement of crypto trading. The sole aim is to establish domestic regulations. Some of the leading factors that have necessitated these regulations include:
- the need to regulate the crypto assets service providers,
- promote responsible innovation
- prevent the risks and scams associated with crypto assets.
In addition, the IFWG is working to spread awareness to ensure the crypto users are well versed with crypt products and services and their inherent risks.
The Regulations Were Well Overdue
Although crypto is highly volatile and has inherent risk, cryptocurrencies have gained traction. They have proved to be great instruments for global transactions and means of payment. However, the existing exchange regulations in South Africa don’t address crypto market problems. For instance, the Reserve Bank does not have the power to control and track crypto-assets transactions.
South Africa’s cryptocurrency trading volume in the first quarter of 2021 is about $25.8 million. Therefore, huge investments are directed to the crypto assets without proper oversight from the South African financial institutions. Without proper control, crypto activities can lead to unregulated parallel systems. Therefore, the regulations will prevent risks involving international financial flows, terrorism financing, and enhance consumer protection.
That said, consumers must be responsible while trading crypto assets. In other words, Crypto investors should understand the crypto services and products before venturing into the industry. Additionally, they should only deal with regulated and duly registered CASPs.
Currently, Ponzi schemes and scams are the leading inherent risk of cryptocurrency. Marius Reitz, the general manager of LUNO Africa, says the regulations will bring stability, trust, prevention, and legitimacy into the market. In addition, the regulations will boost foreign investment in the country and the inflow of advanced products.
The South African government is in the right direction towards regulating cryptocurrencies. These regulations will provide a framework for other countries, especially in Africa, to control the ever-growing market. Moving forward, more countries are likely to join this course. Ultimately, with proper regulations, we will likely experience an increase in demand for crypto assets boosting their adoption in the long run.