South Africa’s Intergovernmental Fintech Working Group released a new position paper on crypto-assets. In it, they call for the regulation of the country’s current cryptocurrency system.
The group comprises members of various key players from the South African government. These include the revenue service, reserve bank, and competition commission.
The paper confirmed the group’s position. It states that it is necessary to initiate “a staged approach to bring crypto-assets within the regulatory remit through the regulation of crypto-asset service providers.”
Assessing the current crypto landscape
South Africa is one of the biggest crypto markets in Africa. The biggest exchange in the country, Luno, has seen steady growth in customers. In 2020, it almost reached one million new customers.
However, regulation on cryptocurrencies in the country has been uncertain. As a result, it has been on the exchanges to ensure they are working legally.
As a result, the Intergovernmental Working Group’s efforts in this area are important to those trading and working in cryptocurrency in the country.
In analyzing the current market, the group explained that it assessed the “underlying economic function of crypto assets rather than the specific technology applied or the entity involved.”
The recently published document outlines “25 recommendations for a revised South African policy, legal and regulatory position on crypto assets and related activities.”
Three key crypto regulation areas
The three areas that these recommendations focus on are AML/CFT framework, cross-border financial flows, and the application of financial sector laws.
The first area that the group is concerned with is anti-money laundering and combating financing of terrorism (AML/CFT).
Exchanges and other crypto asset providers are expected to adhere to these legislative requirements, including registering with the Financial Intelligence Centre (FIC), conducting customer identification and verification, conducting customer due diligence, and keeping records of client and transactional information.
In addition the paper expects the providers to report cash transaction of $1,818 (R25,000) and higher.
Cross-border financial flows
The second area is the monitoring of cross-border financial flows of crypto.
The group recommends the Financial Surveillance Department of the reserve bank assume “supervisory and regulatory responsibility for the monitoring of cross-border financial flows in respect of crypto assets and CASPs.”
This would require some amendments to exchange control regulations.
Financial sector laws
Finally the group recommends and interim measure of declaring these assets as financial products.
This recommendation focuses on ensuring crypto-asset providers are kept within regulatory oversight. In addition, it aims to ensure they “will assist in addressing the immediate exploitation of consumers by unscrupulous entities.”
A caution to consumers
However, the group was clear that its paper was not an endorsement of crypto-assets.
In addition, it warned consumers that “the crypto-asset ecosystem is evolving at a fairly rapid pace, and
developments continue to challenge the applicability of existing legislation and regulations to emerging activities.”
“Consumers are therefore strongly urged to ensure they fully understand the products and services they are gaining exposure to, as well as the associated risks.”