The South African Reserve Bank (SARB) plans to start regulating crypto in 2023. The purpose of SARB is to accept cryptocurrencies as financial assets, not currency. According to the proposed new legislation, digital assets will be covered under FICA, SARB deputy governor Kuben Naidoo said during an online seminar.
The improvement of the economies of the countries that regulate cryptocurrencies, actively use them and follow their development causes the South African Reserve Bank to want to regulate cryptocurrencies. The central bank made this decision about cryptocurrencies because of the adoption of the same approach as Singapore, Australia, and the United Kingdom. These countries are closely watched and their steps are followed. According to Naidoo, it takes between 12 and 18 months for legislation to be completed and enacted. So, the date we must wait is between July 2023 and January 2024.
The SARB plans: steps to create a crypto legislation
Regulating cryptocurrencies is a long process. First, the Minister of Finance needs to amend Program 1 of the FICA Act. In the new version of the law, cryptocurrencies should be categorized as financial assets. After this categorization, the Financial Sector Conduct Authority should develop a new regulatory framework for licensing exchanges.
According to Naidoo, there are two essential things that should not be overlooked when creating laws: introducing KYC and warning people about the risks of cryptocurrency trading. Moreover, this warning will be made as a health warning. KYC, on the other hand, is necessary to prevent things like money laundering, tax evasion, and terrorist use. Trading cryptocurrencies and other blockchain assets will become safer when exchanges collect KYC data from their users and report it to the government.
SARB thinks it can better protect the estimated 7,6 million crypto holders in SA by regulating the crypto industry. SARB, which denied cryptocurrencies as digital assets in 2014 and took steps to ban their use, has admitted that what has been done in the past was wrong. Cryptocurrencies are spreading rapidly in South Africa, similarly to binary options brokers in SA in the past, and if action is taken quickly, the use of crypto will become official. Blockchain technology is penetrating more and more industries, so it’s important that the regulatory framework is well designed.
Investors will be protected
New laws will be enacted primarily to support innovation and protect investors. It is estimated that around 12.5% of the South African population owns cryptocurrencies. For those aged 18 to 60, this rate is 22%. This means more than 7,6 million crypto users, as we just mentioned. 65% of crypto investors in the country see cryptocurrencies and DeFi as the future of finance.
72% of crypto enthusiasts rely on social media posts for DeFi-related information. Posts shared on social media platforms are an important resource for South Africans. The regulation will cover both individuals and companies that provide brokerage services, and individuals who provide investment advice involving cryptocurrencies. Compliance with the global guidelines set by the Financial Action Task Force will be mandatory for both companies and individuals. Anyone who provides investment advice on cryptocurrencies on social media will be legally responsible for their advice.
South Africa’s National Treasury budget review, published in February 2022, officially started the process of recognizing cryptocurrencies as financial products. When the regulation for exchanges is completed, it will be easier to report cryptocurrency transactions. A much safer crypto ecosystem can be achieved with such a framework, according to Naidoo, a member of SARB’s monetary policy committee.
CBDC is also on the agenda
Kuben Naidoo also talked about the possibility of South Africa launching a central bank digital currency. Naidoo said that the country and the central bank are discussing whether they need the CBDC, and also said that they have conducted two pilot applications. The central bank is working on CBDC by learning by experience. Saying that the digital currency created in the test environment could not be very productive, Naidoo stated that they are a few years away from the CBDC launch.