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Retail interest in cryptocurrency has prompted South African officials to reconsider how they categorise cryptocurrencies.
South Africa’s financial regulators are setting the framework for cryptocurrency regulation that will be “phased and structured.” The decision is a shift of the relatively hands-off attitude employed over the previous seven years, and it has been prompted by rising levels of retail interest in cryptocurrency in the country.
In a position paper published on June 11, the country’s Intergovernmental Fintech Working Group , or IFWG, under the aegis of the Crypto Assets Regulatory Working Group, laid out a roadmap for introducing a regulatory framework that will center on crypto asset service providers, or CASPs.
South Africa’s early national position regarding cryptocurrency has been one of caution, but also of noninterference. In 2014, the National Treasury, in collaboration with the South African Reserve Bank, the country’s financial regulator, and financial intelligence and tax authorities, released a public statement on the subject. Its tone was cautionary but unobtrusive, telling the public that they might trade cryptocurrency at their own risk and would have no legal protection or remedy if things went wrong.
Commentators have noted that several factors, including the South African crypto market’s surge to in excess of 2 billion rand ($147 million) in daily traded value earlier this year, have rendered this former policy untenable.
IFWG’s new paper emphasizes that even though a structured regulatory framework is set to be phased in, crypto assets remain “inherently risky and volatile” and the prospective financial losses incurred by crypto trading activities remain high.
Six guiding principles will guide the country’s growing strategy. These include adopting a “activities-based perspective” to ensure that the principle of “same activity, same risk” guides regulators’ decisions; implementing risk-proportional measures; taking a collaborative approach to crypto asset regulation; staying current with international best practises; and encouraging digital financial literacy among consumers.
The document also makes 25 recommendations on how to regulate cryptocurrency in three major areas of concern: anti-money laundering and counter-terrorism financing, cross-border financial regulations, and the application of financial sector regulations. This last point means that South Africa’s Financial Sector Conduct Authority would be responsible with preventing market abuses, such as fraud and market misbehaviour, and taking action against relevant sector violators.
Alongside the published paper, IFGW issued a press release outlining its strategy, which gave space to its concerns about the nature of the asset class and surrounding ecosystem.According to IFGW, decentralisation is a disadvantage, not a benefit, because it leaves consumers and merchants without recourse to an authority or centralised institution that may rectify user mistakes, such as utilising the wrong crypto wallet address.
IFGW is particularly worried about the manipulative character of many crypto marketing material, the volatility of asset prices, and scam activities like as Ponzi schemes. Indeed, the country’s largest-ever Ponzi scam this year comprised a business aimed at Bitcoin (BTC) traders that collected 23,000 BTC in investor holdings from an estimated 26,000 members globally.