During a virtual seminar earlier this week, deputy governor Kuben Naidoo revealed the South African Reserve Bank’s plans to proceed with crypto regulation. Naidoo says the bank rather sees cryptocurrencies as “assets” rather than as conventional currencies.
The institution will roll out somewhat crypto-friendly laws within the next 12-18 months.
Crypto Adoption in South Africa
South Africa’s crypto community is thriving significantly. According to research from exchange Luno, roughly 13% of the nation’s residents hold digital assets of some kind. Hence, crypto regulation has grown into a pressing need as over 6M individuals are in contact with crypto.
The deputy governor noted that South Africa has kept up with other nations in terms of regulation. However, it is worthy of note that the initial crypto craze has begun to die down especially due to the recent market slump. Likewise, Central banks across the globe are intent on maintaining some control over the expanding crypto space.
At the same time, they are attempting to make sense of the underlying technology and brainstorm potential applications. Naidoo highlighted the importance of making a distinction between crypto-related developments and a perceived hype around the asset class.
“Financial Assets” not “Currencies”
Local investment firm PSG’s Think Big webinar saw Naidoo address a possible regulatory framework. He said that the South African Reserve Bank will not classify cryptocurrencies as simply a means of payment. Rather, the authorities will deem the digital assets financial products in their own right.
Naidoo noted that the Reserve Bank has already abandoned plans to regulate digital tokens as a currency. In his words “you can’t walk into a shop and use it to buy something.” Another factor is the established volatility of the industry.
By all definitions, it’s [cryptocurrencies] not a currency, it’s an asset. It’s something that is tradable, it’s something that is created. Some have backing, others do not. Some may have a genuine underpinning, real economic activity.”
SARB to Introduce Regulation
With the new laws, the regulators could introduce cryptocurrencies as assets with mainstream utility. The Reserve Bank will achieve this through a couple of steps, the first of which is listing crypto as financial assets.
This essentially places crypto assets within the authority of the Financial Intelligence Center (FIA). The Center will supervise crypto transactions to spot activities such as money laundering, tax evasion, and terrorist financing.
Following this, the SARB will work on and introduce regulations for South Africa-based exchanges. Crypto swap platforms will receive directions regarding token listing such as Know Your Customer (KYC) verification and exchange control laws. The authorities will also impose tax laws and require exchanges to put out warnings regarding investment risks.
Interestingly, in the past, the SARB has probed into the potential release of a central bank digital currency (CBDC). In April this year, the Reserve Bank completed a technical proof-of-concept. Likewise in April, the Central African Republic created a legal framework to finally oversee cryptocurrencies in its jurisdiction.