South African reserve bank proposes crypto regulations for exchanges
In a recent report, the Deputy Governor of the South African Reserve Bank, Kaben Naidoo, confirmed that the state is set to create new cryptocurrency regulation rules by next year due to the increase in cryptocurrency holders in the country.
- According to research by Luno, there has been an increase in the adoption rate of cryptocurrency in Africa, and
- Adoption in South Africa is on the high side with over 13% of the total population of South Africans exposed to cryptocurrency and the possibilities of crypto.
- SARB will require cryptocurrency exchanges operating in South Africa to issue a health warning to highlight the possibility of losing money.
However, initially, the country did not necessarily see the need for the introduction and implementation of cryptocurrency regulatory rules in years past. But according to the SARB deputy governor, with an increase in the adoption of cryptocurrencies in South Africa, the state now has a mindset shift and sees the need to create crypto regulation laws to regulate the use of cryptocurrencies in the state.
Kaben confirmed that this news does not mean that the state recognizes cryptocurrency and bitcoin as a currency. However, cryptocurrencies are tradeable assets and can be traded for profit, and are therefore declared financial assets, which also need to be regulated.
On Tuesday, June 12, the SARB Deputy Governor, Naidoo, revealed during a webinar hosted by local investment firm PSG, that the laws, which are expected to be published within the next 18 months, will not recognize cryptocurrencies as a payment option but rather as a financial product that can be used in the mainstream industry.
“Since you can’t just walk into a store and use cryptocurrency to make a purchase, we have no intention of regulating it as a currency. Our perspective has since shifted to include regulating cryptocurrencies as financial assets. “There is a need to regulate it and make it more widely accepted, but in a way that strikes a balance between the hype and the necessary investor protection,” said Deputy Governor Naidoo.
Aside from the hype surrounding cryptocurrencies, he continued, central banks around the world are researching the market to determine how it can help the financial system, in addition to ongoing regulatory efforts.
The Deputy Governor also pointed out that some cryptocurrencies bring about real technological advancements that can benefit industries like payment and fintech.
Cryptocurrencies will be governed by the nation’s Financial Intelligence Center Act (FICA) as a financial product. The agency will help the government keep an eye on how digital assets are being used for illegal activities like money laundering, tax evasion, and financing terrorism.
The agency will be fully focused on handling and monitoring financial movements in the form of cryptocurrency, as this is one of the biggest problems faced by the cryptocurrency industry owing to its decentralized nature.
Due to the decentralized nature of cryptocurrencies, they are usually faced with issues of monitoring the movements of funds, which leads to illegal acts such as money laundering, tax evasion, and financial terrorism.
The regulation will also specify how cryptocurrency exchanges in the nation will be run, with a particular emphasis on the listing of cryptocurrencies. The crypto regulatory laws will also take cues from Know Your Customer (KYC) and Anti-money laundering regulations already in place in the banking industry.
Naidoo claims that despite the volatile nature of the cryptocurrency market, the central bank is unconcerned about which assets will triumph. He emphasized the need for the institution to provide consumers with a level playing field through sound warnings.
In order to protect users and their citizens from excessive losses and financial breakdowns in the cryptocurrency markets, the new regulatory laws to be implemented by SARB will require cryptocurrency exchanges operating in South Africa to issue a health warning to highlight the possibility of losing money.
Naidoo said that in terms of building regulations, the SARB has gotten positive feedback from cryptocurrency exchanges, which have welcomed the concept.
In response to the rise of cryptocurrencies, the SARB and other financial institutions started the process of changing the law to include crypto assets. For instance, the South African Treasury announced in March that additional cryptocurrency regulations may be completed by 2022.
Also, the South African Reserve Bank continues its exploration of the cryptocurrency sector with the possibility of introducing its own central bank digital currency (CBDC) following a successful proof of concept in April 2022.
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