This week, South African representatives revealed a consultation paper (PDF) regarding cryptocurrency assets. The news was posted via the South African Revenue Service (SARS,) the Financial Intelligence Centre (FIC,) the South African Reserve Bank (SARB,) the National Treasury (NT,) and the Financial Sector Conduct Authority (FSCA,).
The paper was built on top of a foundation established by the Crypto Assets Regulatory Working Group (CARWG.) This group was founded in 2018 in an attempt to enhance the governments’ views on cryptocurrencies. CARWG is made up of officials from SARS and the Intergovernmental FinTech Working Group (IFWG.) However, the IFWG is made up of FSCA, NT, FIC, and SARB.
Dealing With The Unknown
This paper is intended to “develop a regulatory policy response to deal with cryptocurrency’s potential impact on [South Africa’s] financial sector, provide greater clarity for regulators, address identifiable risks, and respond to the nation’s growing interest in participating and investing in the crypto space.”
That said, instead of looking at the underlying blockchain technology, the group meant to look at crypto assets at an economic level. This way, everyone decided on five distinct use cases for South African usage of cryptocurrencies: fundraising via ICO, payment transactions, crypto transactions, funds/derivatives, and “market provisioning.” While these are all important policies, the consultation paper is focusing on crypto transactions and payment transactions. Later on, the company will detail their approach towards the other three.
Additionally, the companies made sure to define that crypto assets are viewed as both a form of investment and a form of payment. It also identifies them as assets which “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 document does not classify digital assets as electronic money though, because they “are issued electronically by decentralized entities and have no legal tender status.”
This paper doesn’t view cryptocurrencies as a save all, however. It does detail the “generic risks” of using these assets. For example, digital assets do stand in the way of traditional financial systems and banks. These are another form of payment that isn’t in control by any central authority. Right now, this isn’t too much of a threat. However, as the crypto industry grows and expands, a takeover could be more of a risk.
Learning From The Best
In creating this paper, South Africa looked at how other countries are solving cryptocurrency regulation. One approach they’re going for is stronger anti-money-laundering policies on top of anti-terror regulations. They’re calling this approach “limited regulation.” However, in doing so, the group needs an official to detail “specific requirements on providers of certain services in respect of crypto assets, without setting predefined conditions for formal authorization to provide crypto assets-related product or services,” reads the consultation paper. This would ensure that crypto groups hold assets “accountable” under the AML laws.
The paper also suggests that many crypto groups register with the IFWG, especially exchanges, custodial firms, providers of crypto ATMs, and any other payment methods associated with digital assets.
Finally, this document also reassures citizens that officials are not looking to ban cryptocurrencies or ownership of digital assets, transactions, trading, purchasing, selling, or anything else. That said, users should be aware of the state of the industry, including the risks of participating in an unregulated market. It also states that the country can change their stance on crypto whenever they would like, “should crypto assets pose a material risk to their respective regulatory mandates.”