The Intergovernmental Fintech Working Group (IFWG) has published a position paper on crypto assets in South Africa, and its plan to regulate these assets in South Africa.
Members of the IFWG include the Competition Commission, the Financial Intelligence Centre, the Financial Sector Conduct Authority, the National Credit Regulator, National Treasury, the South African Revenue Service, and the South African Reserve Bank.
The IFWG said that its position on crypto-assets is neither explicitly ‘hostile’ nor explicitly ‘friendly’, with the regulators aiming to remain neutral with the objective of enabling responsible innovation in the crypto-asset ecosystem while ensuring a level playing field between both incumbent and new role players.
In the domestic context, the main concerns around the use of crypto assets are around their well-documented use for illicit activities, including but not limited to tax evasion, money laundering and terrorism financing.
Other concerns raised by the IFWG include:
- The potential longer-term impact on the effectiveness of monetary policy tools;
- The potential longer-term impact on financial stability through developments including but not limited to the creation of parallel payment systems;
- The flight of capital abroad through the evasion of South African exchange controls.
“There are then also consumer risks and consumer protection issues. Customers may invest in risky products or services that they do not fully understand and which are unsuitable to their needs, or may fall prey to fraudulent players running scams purporting to relate to crypto asset products,” the IFG said.
The IFWG said that its intention is not to regulate the actual crypto assets and associated products, but rather the entities that provide services in relation to such products.
The position paper refers to these as regulating the crypto asset service providers, or CASPs.
The IFWG proposes first identifying a list of services that can be considered CASPs and then bringing them under the ambit of the Financial Intelligence Centre (FIC) Act so that they are considered ‘accountable institutions’.
Under the Act, accountable institutions are required to register with the government, keep information on customers, report suspicious transactions, and report transactions over a certain amount.
Similar to banks, they will also be required to conduct a risk assessment on customers, including the likelihood that the money is being used for terrorism or laundering.
The FIC will be able to administer penalties for non-compliance.
Other recommendations include:
- The crypto-asset industry will be monitored, including daily trades, client bases, service providers and the volume of trades;
- Crypto assets will remain without legal tender status and not be recognised as electronic money;
- The Prudential Authority should consider the appropriate supervisory and regulatory approach for the treatment of prudentially regulated financial institutions, such as banks, exposures to crypto assets, including reporting of their direct exposures to crypto assets
- Relevant stakeholders should significantly increase campaigns on digital financial literacy, including crypto-assets.