South Africa’s central bank in conjunction with other financial regulators in the country recently published a document that proposes 30 rules for the crypto sector. These proposed rules adhere to the guidelines published by the Financial Action Task Force a while back.
A Joint Effort
In total, the document contains 30 recommendations, which comply with the recommendations of the FATF. The paper was a joint effort by the Intergovernmental Fintech Working Group (IFWG) and the Intergovernmental Crypto Assets Regulatory Working Group. Members of the IFWG include the FSCA, the National Treasury, the National Credit Regulator, the South African Reserve Bank, and the South African Revenue Service.
Rules for the Crypto Sector
The paper contains 30 proposals on how the crypto sector and ICOs in South Africa will be regulated. Members of the public and stakeholders in the crypto sector are invited to submit their feedback by May 15.
The first proposal ensures that South Africa complies with the guidelines created by the FATF for service providers in the crypto sector. Its goal is to ensure that those in the crypto sector comply with strict anti-money laundering requirements. Since the FATF created its recommendations in June 2019, it has been actively enforcing them in member nations. The service providers, according to the FATF recommendations are token issuers, ATMs, custodial wallets, derivatives services providers, and any custodial service providers in the crypto sector. According to the proposal, all recommendations of the FATF should be enforced, which includes the travel rule.
The proposals recommend that the Financial Intelligence Center be in charge of supervising crypto service providers. Service providers in the crypto sector will have to register with a regulated institution. Besides that, they must enforce all AML and CFT rules. As part of the compliance, they will enforce KYC policies, maintain proper records, conduct due diligence, monitor their systems for suspicious activities, and report any suspicious activities to the FIC. The paper proposes that the service providers report any transactions of R25,000 or higher to the FIC.
Additionally, the policy paper recommends that the Financial Sector Conduct Authority will be in charge of the licensing of services to the purchase and sale of crypto. The paper calls for the creation of specific standards to regulate these services.
Further, the paper calls for the Financial Surveillance Department under the central bank to take up the role of regulating and supervising all illegitimate cross-border financial transactions in the crypto sector. The paper notes that the Intergovernmental Crypto Assets Regulatory Working Group will continue to monitor all crypto activities in the country.
Crypto is Not Legal Tender
In its conclusion, the policy paper states that crypto will not be recognized as legal tender in South African. As a result, it will not be classified as electronic money in the country. All money settlements will only be conducted in recognized legal tender and transactions in crypto will not be recognized as money settlements within the South African financial system.
South Africa Cryptocurrency Growth
The tough rules proposed by South Africa will no doubt have a major impact on the crypto world. However, it is worth noting that the country has decided to regulate the crypto sector instead of trying to ban it. Back in 2019, it was reported in the “2019 Global Digital Handbook” that South Africa ranked 1st in terms of % of internet users that own some form of cryptocurrency.
Aside from many Africans being financially “unbanked”, the economic system in Africa experiences catastrophic inflation levels. For this reason, Bitcoin in particular has become a popular digital asset in South Africa. We’ve seen this narrative in many other geographic regions as well, such as Venezuela and Zimbabwe. Individuals that live in politically unstable countries flock to Bitcoin due to its deflationary infrastructure. In addition, investors in these regions view crypto as hedge against “political risk”. A couple years ago, South Africa had no interest in regulating digital assets.
As talks continue to surface regarding projects within Facebook, Banks, and the Federal Reserve, you should start to see many other countries taking the same approach that South Africa is.
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