South Africa’s financial regulators are laying the groundwork for “phased and structured” regulation of cryptocurrencies. The move features a reversal of the largely hands-off approach taken over the past seven years and has been fueled by increasingly high levels of retail interest in cryptocurrencies in the country.
In a position paper Released on June 11, the country’s Intergovernmental Fintech Working Group, or IFWG, under the aegis of the Crypto Asset Regulation Working Group, established a roadmap to introduce a regulatory framework that will focus on service providers. crypto assets, or CASP.
South Africa’s initial national policy towards cryptocurrencies has so far been one of caution but also non-interference. In 2014, the National Treasury issued a public statement dedicated to the issue, along with the South African Reserve Bank and the country’s financial regulator and tax and financial intelligence agencies. His tone was cautious but not intrusive, warning the public that they could trade cryptocurrencies at their own risk and would not be offered legal protection or recourse in case of difficulties.
Commentators have noted that various factors, including the rise of the South African crypto market to more than 2 billion rand ($ 147 million) in daily traded value at the beginning of this year, have made this previous policy untenable.
The new IFWG document emphasizes that although a structured regulatory framework is set up to be implemented, crypto assets remain “inherently risky and volatile” and the potential financial losses incurred from cryptocurrency trading activities remain high.
Six general principles will inform the country’s evolving approach. These involve adopting an “activity-based perspective” that ensures that a principle of “same activity, same risk” guides the decisions of regulators; implement measures proportional to risk; adopt a collaborative approach to the regulation of crypto assets; keep up to date with international best practices and promote digital financial education among consumers.
The document also presents 25 recommendations on how to regulate cryptocurrencies in relation to three main areas of concern: fighting money laundering and terrorist financing, cross-border financial laws, and the enforcement of financial sector laws. The latter implies that the South African Financial Sector Conduct Authority will be tasked with preventing market abuses, for example fraud and market misconduct, and taking action against relevant perpetrators in the industry.
Related: Liquidators Seek Expanded Investigation of South Africa’s Alleged Bitcoin Scheme
Along with the published document, IFGW issued a Press release summing up its strategy, which gave space to its concerns about the nature of the asset class and the surrounding ecosystem. IFGW pointed to decentralization as a disadvantage, not an advantage, which leaves consumers and merchants without recourse to a centralized authority or entity that can resolve user errors, for example by using the wrong crypto wallet address.
IFGW also remains concerned about the manipulative nature of much of the crypto marketing material, the volatility of asset prices, and fraudulent activities such as Ponzi schemes. In fact, this year, the country’s largest Ponzi scheme involved a company targeting Bitcoin (BTC) traders, which amassed 23,000 BTC in investor holdings of some 26,000 members around the world.