South Africa Goes Ahead with ‘Light Regulation’ for Cryptocurrency

The South African Reserve Bank (SARB) has implemented ‘light regulation’ for cryptocurrency. As per the new laws, cryptocurrency asset trading platforms, custodial service provider and payment service providers have to register with the Intergovernmental Fintech Working Group (IGFWG) which is formed by members of the Treasury and SARB. The newly imposed regulation is in line with rules and regulations for cryptocurrencies in countries like Singapore, Canada, Argentina and Czech Republic.

In its latest consultation paper, SARB recommended that cryptocurrencies like Bitcoin are not legal tender and neither is it classified as digital money. The Bank proposed trading platforms to be registered with the Financial Intelligence Centre. The paper highlights that crypto assets could materially impact financial services, as some view crypto assets as a new form of money that has direct impact on economic activities such as payments, investments and capital raising. The working group also proposed the definition of crypto assets as digital representations or tokens that are accessed, verified, transacted and traded electronically by decentralized entities and have no legal tender status.

“Globally, regulators have not sufficiently addressed the phenomena of crypto assets. Various approaches have been adopted as some jurisdictions have explicitly allowed its use and trade, others have banned and restricted it, while most jurisdictions have followed the monitoring approach and issued warnings, but have not declared it illegal.” The consultation paper also brings to attention the perceived risks such as increase in undetected illicit financial flows, money laundering and terrorist financing risk, consumer and investor protection concerns, including market manipulation and consumer investor protection concerns.

Tito Mboweni, the South African Finance Minister, said there has been growing concerns about cryptocurrency in the country. In 2018, it released a draft cryptocurrency tax legislation. The South African Revenue Services (SARS) maintained its stance that it will continue to apply normal income tax rules to cryptocurrencies.