In July, the South African Reserve Bank (Sarb) and Loerien Gamaroff, CEO of blockchain based solutions provider, Bankymoon confirmed that the central bank was looking at possibly regulating Bitcoin in South Africa.
Gomaroff said that the company was in talks with the central bank and had been selected as its first sandbox (experimental) business to trial-run new regulations.
This included a number of workshops and seminars around cryptocurrencies and their use in the South African market.
The team at Bankymoom was also called in as part of an investigation into alternative currencies in the country, it said.
What is a sandbox?
According to Ashleigh Petzer, associate at law firm Webber Wentzel, a “regulatory sandbox” is simply a set of rules that allows innovators, such as fintech companies, to test their products/business models in a live environment for limited duration whilst being exempt from having to adhere to some or all legal requirements.
Benefits of using a sandbox include promoting innovation by reducing some of the existing regulatory barriers; the ability to advance fintech innovations which are designed to be financially inclusive; as well as an area safe experimentation, said Petzer.
“SARB, by its selection of Bankymoon for the testing of Bitcoin within a sandbox, seems to be the authority which will test this particular sandbox,” she said.
“With the introduction of the Financial Sector Act (Act) signed into effect on 21 August 2017, SARB will, in the future, be the prudential regulator in South Africa, meaning that they will be responsible for ensuring the soundness of regulated financial institutions.”
Why sandboxes are important
Currently it seems that if a company wishes to enter a sandbox in South Africa they would need to approach the SARB themselves, as was the case with Bankymoon.
In contrast, the UK’s FCA (Financial Conduct Authority) has a portal on its website that invites applicants to apply to enter a sandbox and such applicants then undergo a selection criteria, said Petzer.
“As sandboxes become more popular in South Africa, it may be practical for a similar method to the FCA approach to be followed such as setting up a portal that allows applicants to apply to enter the sandbox in order to ensure easier access to the sandbox,” she said.
“It is important to watch the sandbox which will be operated by Bankymoon and the SARB closely as it may very well set a trend of future sandboxes in South Africa.
“It will also be interesting to see what will happen to companies after they exit the sandbox – whether new regulations will be implemented or whether the company will be allowed to continue to operate its business without regulations,” she said.