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The Financial Sector Conduct Authority (FSCA), which works in collaboration with the South African Reserve Bank (SARB), recently announced that it is establishing a new regulatory framework for cryptocurrencies in South Africa.
Both the FSCA and the SARB have been vocal about declaring cryptocurrencies as financial products, and the Prudential Authority division at the SARB recently shared a similar sentiment, said Francois Stofberg, a senior economist at Efficient Wealth.
The Prudential Authority also asked banks to work with crypto exchanges instead of simply closing their accounts, said Stofberg.
The deputy governor of the SARB, Kuben Naidoo, said that it is set to introduce new regulations around the trading of cryptocurrency in the next 12-18 months.
This falls under a major initiative by the Reserve Bank to commit to bringing crypto-assets into the regulatory ambit, given the growth and proliferation of the assets and the resulting risks they pose in the form of illicit financial flows, among others.
Naidoo said that cryptocurrencies first have to be declared a financial product in South Africa, which would lead to them being monitored and secondly, the SARB will develop a regulatory framework for the exchanges to allow for crypto listing. He said that this would include traditional banking regulation and exchange control mechanisms.
More regulation is needed in the cryptocurrency space to protect consumers against scams and fraudulent activity that has been on the rise over the past few years, Stofberg said.
“Only with effective legislation can this superior technology be adopted by the masses.”
The regulation of cryptocurrencies is bound to be challenging as one of the fundamental difficulties that face regulators is that not all currencies are the same. Stofberg said that as a result of the varied nature of cryptocurrencies, regulators need to be more fluid in their approach – a characteristic that they are not always known for.
Due to crypto’s diversity, it is more appropriate for regulators to refer to them as tokens, coins, or even digital assets. With Bitcoin as an example, for all intents and purposes, it is not a currency – it should be considered to be a store of value because of its limited supply, like gold, said Stofberg.
That being said, its price volatility does not qualify it as a store of value in the traditional sense. The unique characteristics of each token, such as Litecoin, Ethereum or Bitcoin, are collectively referred to as ‘tokenomics’ – what makes the token unique and desirable.
For this reason, if regulators want to effectively regulate these digital assets, they must differentiate between specific groups of tokens and apply rules appropriately, said Stofberg.
