South Africa to crack down on cryptocurrency miners and stablecoins
National Treasury is exploring measures to regulate electricity-intensive cryptocurrency mining in South Africa.
In the 2022 Budget Review published this week, Treasury said that crypto mining is environmentally harmful.
It also stated that South Africa’s Intergovernmental Fintech Working Group (IFWG) would publish a paper to address risks posed by “so-called” stablecoins.
Paradoxically, Treasury’s comments were contained in a section of the Budget Review titled “Promoting financial innovation to improve competition and inclusion”.
Treasury said that the IFWG’s stablecoin paper would be a follow-up to its position paper on crypto-assets published in June 2021, which set out a coordinated and phased approach to regulating crypto assets.
South Africa’s regulatory authorities are developing several interventions based on the recommendations in this paper, including:
- Require that crypto asset service providers comply with the Financial Intelligence Centre Act (FICA). This would address concerns around money laundering and terror risk financing raised by the Financial Action Task Force.
- Declare crypto assets as a financial product under the Financial Advisory and Intermediary Services Act. This would protect consumers by requiring that any person giving advice or intermediary services register as a financial services provider. This will include crypto-asset exchanges and platforms and brokers and advisors.
- Enhance monitoring and reporting of crypto asset transactions to comply with the Exchange Control Regulations of 1961.
Treasury said the process to include crypto assets in South Africa’s exchange control regulations is underway.
According to Treasury, the proposed amendments to FICA were published in June 2020 for public consultation and are expected to be finalised during 2022.
The work to declare crypto assets a financial product is also expected to be finalised during 2022.
Treasury noted that the Financial Action Task Force (FATF) identified significant weaknesses in South Africa’s anti-money-laundering and counter-financing of terrorism systems.
“Many of these weaknesses relate to institutional weaknesses that developed between 2009 and 2018, coinciding with the period of state capture,” it stated.
Crypto crackdown
While South Africa’s various regulators are ostensibly working on rules for cryptocurrencies that will also “foster innovation”, the South African Reserve Bank and its Financial Surveillance department decided to crack down on the space last year.
Among these crackdowns were:
- It declared that it was illegal to buy cryptocurrency from an overseas provider using a debit or credit card.
- It warned that it is a criminal offence to transfer cryptocurrency from a local exchange, wallet provider, or self-hosted wallet to overseas exchanges.
- It declared that decentralised exchanges and decentralised financial protocols are considered offshore for the purposes of these criminal offences.
Last year Standard Bank also served account termination notices on several clients who offer automated cryptocurrency arbitrage services.
The Financial Sector Conduct Authority has also cracked down on cryptocurrency exchanges like Binance, FTX, and ByBit, offering leveraged and derivatives trading.
These platforms were required to block South Africans from trading on margin to continue doing business in the country. At least until such time as they might apply for a licence to offer such services legally.
Since no regulations exist for cryptocurrency services yet, applying for such a licence is not currently possible.
E-rand — Central Bank Digital Currency
Treasury said that the South African Reserve Bank is exploring the policy and regulatory implications of digitalisation in financial markets.
“Following the review of a wholesale digital central bank currency or digital cash, the second phase of this project explores digital financial assets based on distributed ledger technology and the use of digital money to settle payments.”
The project findings are expected to be released in April 2022.
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