• Retailers’ interest in virtual currencies has led South African regulators to a new national policy on cryptocurrencies.
• The country’s financial regulators are working on regulations in phases.
South African regulators are laying the groundwork for phased regulation of virtual currencies through national policy. This measure represents a repositioning of the largely non-interference or intervention approach adopted in the last seven years. This move has been driven by the very high-interest levels from retailers on digital assets in South Africa.
In a document published on Friday, the country’s Intergovernmental Fintech Working Group has established a route for introducing a regulatory framework focused on service providers in the crypto market. This document was established under the Cryptographic Assets Regulatory Working Group.
South Africa has a reserved national policy
South African national policy towards virtual currencies so far has not interfered. The National Treasury in 2014 issued a public statement discussing this issue. This statement has been made with regards to the country’s financial regulator, the Reserve Bank of South Africa, and the financial and tax intelligence agencies.
The statement’s tone was cautious and reserved but not interfering and warned the public that they could trade digital assets at their own risk. Furthermore, they stated that it would not offer them legal protection if difficulties occur.
Experts and commentators have noted several factors, including the rise of crypto in South Africa (over 2 billion rand – $147 million) in a daily value traded in early 2021. These factors have led to thoughts that the above policy is unsustainable.
The new IFWG document highlights that even though a regulatory framework is structured and scheduled to be implemented, cryptocurrencies remain substantially volatile and risky. As a result, possible financial losses from crypto trading activities continue to be high.
Six basic principles inform the focus on the South Africa evolution. These general principles imply adopting an activity-based representation to ensure that it has the “same activity, same risk” principle.
The other general principles are: to guide the decisions of regulators, to implement measures commensurate with risk, to keep up with international best practices, to adopt a collaborative approach to crypto regulation, and to foster digital financial literacy among consumers.
The new national policy also shows 25 recommendations on regulating virtual currencies about three main areas of concern. These areas are the fight against money laundering and terrorist financing, the enforcement of financial sector laws, and cross-border financial laws.
Applying financial sector laws implies that the country’s Financial Sector Conduct Authority will be committed to preventing market abuses, such as market misconduct and fraud as regards cryptocurrencies.