Reserve Bank proposes stricter cryptocurrency regulations for South Africa in 2019

The South African Reserve Bank (SARB) has released a new consultation paper focusing on crypto assets in the country.

The SARB said that the purpose of the consultation paper is to:

• Provide an overview of the perceived risks and benefits associated with crypto assets;
• Discuss the available regulatory approaches;
• Present policy proposals to industry participants and stakeholders.

It added that the paper focuses exclusively on non-government-issued crypto assets and not on central bank digital currencies – including central bank cryptocurrencies.

Increased regulation

One of the key focuses of the paper are the risks posed by crypto assets in South Africa.

In addition to more generic risks such as ‘the threat to central banks’ historical exclusive right to issue money’, the paper also identifies more specific risks such as the lack of consumer protection, possible misuse related to money laundering and terrorist financing, circumvention of exchange controls and the increase of undetected illicit financial flows.

As such, the paper recommends that further crypto asset regulations be introduced in South Africa in 2019.

“Given the related risk in crypto assets, it is proposed that South Africa moves to a higher level in 2019,” it said.

“In order to achieve anti-money laundering/combating the financing of terrorism (AML/CFT) requirements, more specific requirements will be necessary in line with the recent amendments to the Financial Action Task Force (FATF) Recommendations.”

The paper specifically recommends that crypto assets fall under ‘limited regulation’.

“At this proposed level, an official body places specific requirements on providers of certain services in respect of crypto assets, without setting predefined conditions for formal authorisation to provide crypto assets-related products or services,” it states.

“Therefore, in terms of the proposed level, the Financial Intelligence Centre (FIC) will include crypto assets service providers as an accountable institution and, as such, the accountable institutions will be under legal obligation “to comply with AML/CFT requirements in the FIC Act.”

The working paper said that further regulation may be introduced considered pending developments in the crypto asset environment and further clarity on the regulatory fit of specific crypto asset activities.

“South Africa thus proposes a phased and dynamic approach to progress between levels,” the paper states.

No plans to ban

Despite the introduction of tougher regulations, the paper states that South Africa does not currently intend to ban the buying, selling or holding of crypto assets, or to ban crypto assets for payments.

“However, because crypto assets are not recognised as a currency, customers may be exposed to harm in an unregulated environment,” it states.

“The decision not to ban the use of crypto assets is, however, based on the existing landscape and current levels of adoption, acceptance and use. South African authorities, therefore, reserve the right to amend their policy stance should crypto assets pose a material risk to their respective regulatory mandates.”

Read: Reserve Bank and Treasury want to regulate airtime and bitcoin transfers