The Crypto Assets Regulatory Working Group (CARWG) has published a new position paper on the regulation of Bitcoin and other crypto-assets in South Africa.
The working group – which is comprised of teams from Treasury, the Reserve Bank, SARS, and the Financial Intelligence Centre – aims to formulate a national policy stance on crypto-assets.
It aims to do so while ensuring the continued integrity and efficient functioning of financial markets, maintaining financial stability, protecting the rights and interests of customers and investors, and combating illegitimate cross-border financial flows.
Some of the biggest risks around cryptocurrencies that the group has identified include:
- The risk of a parallel, fragmented, non-sovereign monetary system;
- Consumer protection as well as market efficiency and integrity risks;
- The risk of an undefined legal and regulatory framework;
- Money laundering and terrorism financing;
- Exchange control risks;
- Cyber security risks; and
- Dodgy initial coin offerings (ICOs).
To address these issues, the working group has recommended that entities providing crypto-asset services be regulated as ‘crypto-asset service providers’ or ‘CASPs’.
The table below outlines how these CASPs would be defined:
These CASPs would be regulated under section 1 of the Financial Intelligence Centre Act and would be considered ‘accountable institutions’ – similar to banks and other financial institutions.
As part of this process, all CASPs will be required to register with the Financial Intelligence Centre (FIC) as an accountable institution.
They will also have to abide by all of the FIC’s legislative requirements including:
- Conducting customer identification and verification;
- Conducting customer due diligence;
- Keeping records;
- Monitoring for suspicious and unusual activity on an ongoing basis;
- Reporting to the FIC any suspicious and unusual transactions;
- Reporting cash transactions of R25 000.00 and above (or the applicable threshold at any given time);
- Reporting in respect of control of property that might be linked to terrorist activity or terrorist organisations.
As with other financial institutions, these CASPs will also have to do risk assessments on customers and maintain information both on account holders and where the money is heading (beneficiaries).
The FIC will have the power to impose administrative penalties where there is non-compliance.
Other notable recommendations made by the working group include:
- It is recommended that crypto assets remain without legal tender status and not be recognised as electronic money;
- National Treasury’s tax policy unit should, alongside SARS, consider the adoption of a uniform definition of crypto assets within the South African regulatory framework;
- The regulation of ICO issuers must be aligned, as far as possible, to the regulation of issuers of securities or ‘over-the-counter’ financial instruments;
- It is recommended that the pooling of crypto-assets be regarded as constituting an alternative investment fund, which should therefore become a licensing activity in terms of the CoFI Bill.
- The FSCA should make a determination on whether crypto-assets should be considered as allowable assets for the requirements of pension funds.
Members of the public and impacted role players and stakeholders are requested to provide comments on the position paper by 15 May 2020.
You can read the full position paper below: