Details of South Africa’s Emerging Crypto Regulations
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Details of South Africa’s Emerging Crypto Regulations

South Africa is walking away from its noninterference yet cautionary policy regarding cryptocurrencies.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Historically, crypto assets have been largely unregulated in South Africa. The very first public statement on cryptocurrencies in the country was issued by its National Treasury back in 2014, and it was solely confined to warning about the risks associated with this speculative market. 

However, this stance is now changing as South Africa’s financial watchdog aims to bring regulations to the digital asset space. According to a position paper published on Friday, South Africa’s Intergovernmental Fintech Working Group (IFWG) calls for the regulation of the country’s cryptocurrency ecosystem.

South Africa’s Regulatory Recommendations for Digital Assets

South Africa has laid the foundation for its financial watchdog (IFWG) to bring crypto-assets into its regulatory purview — and as claimed, “in a phased and structured manner.” According to the position paper, the regulatory recommendations are grouped into these three overarching categories:

  1. Implementation of AML/CFT framework: South Africa has already commenced the work to incorporate crypto asset service providers (CASPs) into the list of accountable institutions. Once CASPs are added to this list, they will be required to adhere to the legislative requirements aimed at anti-money laundering and combating the financing of terrorism (AML/CFT). 
  2. Framework for monitoring cross-border financial flows: The IFWG asserts that it demands the Financial Surveillance Department of the South African Reserve Bank to “assume the supervisory and regulatory responsibility for the monitoring of cross-border financial flows in respect of crypto assets and CASPs.” Furthermore, the IFWG states that all transactions aimed at purchasing cryptocurrencies from abroad should be reported to a specific balance of payments (BOP).
  3. Application of financial sector laws: The IFWG requires that crypto-assets be declared as financial products. Consequently, crypto-asset service providers would be needed to become “licensed intermediaries and provide for the rendering of advice by such entities.”
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Is the Amount of Regulations Reasonable?

Following the collapse of Mirror Trading Investments (MTI) in December 2020, which had collected over 23,000 from investors and was named the biggest crypto investment scam in the world, South Africa warned that it will regulate cryptocurrencies with more power to prosecute fraudsters.

The news was pretty scary for crypto industries, as fear of a regulatory clampdown in the country convinced some cryptocurrency startups to look for more friendly environments. But now, with the groundwork for regulations being revealed, was their fear justifiable?

Zooming out from the proposition paper, it is easily perceived that regulations are greatly restrictive. For instance, to adhere to the AML/CFT requirements, all crypto asset service providers need to:

  1. Register with the Financial Intelligence Centre (FIC) 
  2. Conduct customer identification and verification 
  3. Keep records of client and transactional information
  4. Monitor for suspicious and unusual activity on an ongoing basis
  5. Report to the FIC
  6. Report cash transactions of R25 000 (~$1839) and above.

On top of these, crypto-asset service providers also need to develop, document, maintain, and implement a Risk Management and Compliance Programme, and train employees about AML/CFT compliance. 

On its surface, such massive regulations substantially increase the costs and troubles of running a crypto startup, while greatly demoralizing crypto business startups and crypto users. It remains to be seen if crypto exchanges adopt these new regulations or choose to relocate to a more regulatory-friendly environment — as Revix recently did.

Do you think South Africa is imposing excessive regulations? How will this new regulatory policy affect the country’s crypto adoption? Let us know what you think in the comments below.