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South Africa’s Introduction to Crypto Regulation

Apr 22, 2020

Cryptocurrencies have been shown to be mainstream in South Africa, with 10.7% of the country’s residents owning crypto, which is one of the highest of any country at the moment. South Africa’s cryptocurrency market has reached a point where it can no longer be ignored.

At the end of the last year the South African Reserve Bank (SARB) reported that they are going to impose new regulations for the use of digital currencies in a bid to deter crypto users from evading currency controls. At the time SARB’s officials said that the new rules will be implemented in the first quarter of 2020, following a five-year-long series of consultations on the matter. Such a move indicated the first step towards policing the South African virtual currency scene which has so far seen little in the way of crypto regulation.

South Africa’s regulators argue that the growth of the digital economy depends on the establishment of a clear-cut crypto regulatory infrastructure that promotes innovation. Regulators fear that major blockchain firms operating outside the scope of their legislative control in the future.

Considering that, last week South Africa’s Intergovernmental Fintech Working Group (IFWG), whose members include the South African Reserve Bank (SARB), the Financial Sector Conduct Authority and the National Treasury, announced that crypto assets and the various activities associated with this innovation can no longer remain outside of the regulatory perimeter and clear policy stances must be formed. In an attempt to reveal South Africa’s stance in the market, IFWG published a paper calling for the development of a clear cut regulatory framework for cryptocurrencies.

New policy would implement strict domestic crypto control. Documentation stipulate specific cases of when and how cryptocurrency users could use their funds. For example, the policy paper calls for a prohibition against using crypto as a settlement tool within South Africa’s financial infrastructure, but asks that crypto be recognized “for domestic payment purposes,” and be regulated accordingly. IFWG informed that payments using crypto assets will, in the interim period, be subjected to a regulatory sandbox approach.

IFWG’s policy calls for more regulations in the blockchain crowdfunding sector. Regulators believe that it is important to align these activities to current securities regulations in the country. The policy mentions STOs and ICOs as two main crowdfunding techniques that should fall under securities regulations. Even payment and utility tokens would also have to submit their white papers to the regulators.

Also, one of the issues raised in IFWG’s policy is about clarification on legal status of crypto assets - thus not illegal to conduct crypto business activities. According to policy it is recommended that crypto assets remain without legal tender status and not be recognized as electronic money.

It’s been noticed that South Africa research and adopt international cryptocurrency standards. New policy will enforce the Financial Action Task Force’s (FATF) new technologies anti-money-laundering and Travel Rule recommendations, two international fundaments for policing crypto businesses. The paper describes FATF as a perfect example of an international attempt to regulate the market.

The new recommendations follow IFWG’s previous crypto consultation paper, issued in Jan 2019 - IFWG’s newest recommendations are open for comment through May 15.

Considering South Africa’s official’s intentions to introduce new crypto legislation, Offshorelicenese team are ready to assist our clients to apply for the South Africa’s FSCA license according to legislation requirements.

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