Public comment on the South African Reserve Bank (SARB) consultation paper for policy proposals regarding cryptocurrency assets closed on 15 February.
The consultation paper proposes several “limited regulations” on offering cryptocurrency services in South Africa.
The SARB stated that its proposals are aimed at monitoring the buying and selling of cryptocurrency. Trading platforms will have to comply with FICA provisions, and the government recommended that platforms monitors transactions which may be linked to terrorist activity.
However, the proposals stopped short of requiring that cryptocurrency services apply for licences like banks are required to.
This raises the question: How will law enforcement be able to monitor trading platforms if they do not need a licence before they are allowed to operate?
Candice Gibson, senior associate in the tax team at Norton Rose Fulbright, explained to MyBroadband that if SARB’s suggestions are phased in like it proposes, the government will have a mechanism to monitor cryptocurrency activities within South Africa more efficiently.
“The South African Reserve Bank proposed that South Africa moves to a higher level of regulation which has been referred to as a level of ‘limited regulation’,” said Gibson.
“Limited regulation means that specific requirements will be placed on providers of certain services in respect of crypto assets, without setting predefined conditions for formal regulation.”
In addition to including crypto asset service providers as an accountable institution with the Financial Intelligence Centre, the SARB has proposed a phased approach for developing a regulatory framework:
- Phase 1: Registration process for crypto asset service providers. Details of this registration process will be published by SARB during the first quarter of 2019. Trading platforms, digital wallet providers, custody service providers, and payment service providers will be affected.
- Phase 2: Review of existing regulatory frameworks. This review will be followed by new regulatory requirements or amendments to existing regulations.
- Phase 3: Assessment of the regulatory actions implemented to evaluate the effectiveness of the regulatory approach taken.
Gibson said that it could be administratively challenging for all crypto asset service providers to register, should the SARB’s proposals be accepted.
This is in addition to the difficulty ensuring that all crypto asset service providers do register and comply with their obligations.
“The success of the regulation of crypto assets will only be determined once implemented and assessed,” Gibson said.
“Currently, with a lack of regulation it is, in my view, almost impossible for the government to be able to monitor crypto asset activities.”
Reserve Bank’s proposals are welcome
Farzam Ehsani, the founder of VALR and former blockchain project lead at Rand Merchant Bank, welcomed the SARB’s proposals. VALR is a cryptocurrency trading platform that launched in “limited access” during December.
“VALR has tried to do things the right way since our inception, and as such, the impact of the current proposal should not be too burdensome,” Ehsani said.
He said their platform already uses artificial intelligence and machine learning to validate customer identities. VALR also has an anti-money laundering and counter-terrorism financing programme in place.
“We anticipate that an appropriate regulatory framework will purge the industry of some of the businesses that have been lax in their measures to protect their customers. Overall, the outcome of this framework should be positive for the industry and the public at large.”