What Do These New Crypto Regulations Mean For South Africa?
The South African Reserve Bank (SARB) released a consultation paper in early January, focusing on the regulation of crypto assets within the country. But what do all the new regulations mean for people using cryptocurrency in South Africa?
New Crypto Regulations For SA
At this time, SARB’s consultation paper has no mention of the intention to ban cryptocurrencies. In fact, it appears as though some robust regulations will be coming our way. Bridget King, director at Cliffe Dekker Hofmeyr states:
The majority of the regulators’ consultation paper highlights the perceived risks associated with crypto assets, including yet to materialise threats, like the potential for crypto assets to infringe on central banks’ historically exclusive right to issue money and control the money supply, which may lead to the monetary policy transmission mechanism becoming less effective,
One of the main reasons for this is simply the fact that cryptocurrency assets are difficult to regulate. Cryptocurrency assets operate globally. As a result, they often don’t fit within a certain specific defined economic ecosystems.
This means that a unified international regulatory approach is essential. Should each country impose different levels of regulations, then crypto assets will migrate towards jurisdictions that are less stringently regulated, resulting in most countries regulations being ineffective.
How These Crypto Regulations Will Work
According to Bridget King, SARB envisions their proposals to be implemented through the issuing of policy instruments that will be done by an appropriate regulatory body. She shed light on this point, stating:
The first of these proposals is the registration of ‘crypto asset service providers’ at a central point, the objective of which, according to the regulators, is to specifically gain further insights from market participants,
This registration requirement could serve as the basis for the formal authorization and designation as a registered/licensed provider for crypto asset services operating in South Africa in the future.
In short, the new crypto regulations will affect all entities performing the following crypto-related activities, requiring them to go through a registration process.
This Will Affect:
- Any Cryptocurrency asset trading platforms (and any entities that aid in the facilitation of crypto asset transactions) that provide intermediary services for the purchasing and selling of any crypto assets. This also includes the use of cryptocurrency vending machine facilities.
- Cryptocurrency trading platforms that convert, exchange or trade fiat currency or anything else that holds value into cryptocurrency assets.
- Crypto asset trading platforms that trade, convert or exchange crypto assets into fiat currency or other value;
- Trading platforms that trade, convert or exchange crypto assets into other crypto assets, crypto asset digital wallet providers;
- Crypto asset safe custody providers (ie a platform that safeguards, stores, holds or maintains custody of crypto assets belonging to another party)
- Crypto asset payment service providers (ie all payment services provided when using crypto assets as a medium of exchange); and
- Merchants and service providers accepting payment in crypto assets.
The South African Reserve Bank’s details regarding the registration process for the new crypto regulations will release sometime in 2019.
The regulators have indicated that they expect the registration process to be implemented by the first quarter of 2019. However it is unclear at this stage when exactly SARB will publish its policy paper regarding the registration. Given where we already are in 2019; it is unlikely that the registration process will be implemented before the end of the first quarter of 2019Bridget King
On the completion of registration, the regulators will then turn their attention to assess whether crypto asset activities will fit into existing regulatory frameworks; or whether amendments can be made to existing laws and regulations to bring the relevant activity within the supervisory ambit of the regulators.
Say Goodbye To Anonymous Trading
South African regulators also suggest that cryptocurrency asset service providers should comply with the Financial Intelligence Centre Act (FICA) in addition to these new crypto regulations.
Among other things, these new provisions would require South African cryptocurrency asset providers to do the following:
- Register with the FIC in order to conduct due diligence of clients. This also includes performing monitoring and file reports on any unusual or suspicious crypto transactions, as well as cash transactions of R25,000 and over.
- Apply a risk assessment style approach in order to meet FICA’s requirements. Some of these include; the ability to distinguish different categories of risk, and apply high levels of due diligence when dealing with riskier clients.
- Ensure complete compliance with FICA or risk facing remedial action. This may include administrative sanctions
Upcoming Monitoring Systems
South African regulators have also proposed to monitor:
- The total and overall market capitalisation of cryptocurrency assets
- The number of retailers and merchants that accept cryptocurrency as a payment method. Both in South Africa and internationally.
- The volume of cryptocurrency assets being bought and sold via cryptocurrency asset vending machines.
King follows this, stating:
Furthermore, the regulators propose very careful surveillance of the crypto asset trading platforms by monitoring, amongst other things, the flow of funds from fiat into crypto and vice versa; the services offered; the trading volume of crypto assets; the number of customers; the governance mechanisms and record-keeping of transactions etc,
In order to implement such intricate monitoring, regulators will either need extensive access to all trading platforms operating within it’s jurisdiction, or will need to impose trade reporting requirements on all cryptocurrency platforms in the future.
How exactly the Regulators plan to monitor the trading platforms remains to be seen,
What do you think about these new crypto regulations? Do you think they’ll hurt or benefit the crypto space in South Africa? Let us know your thoughts in the comments below!