SA authorities take cautious approach to crypto asset regulation

Concerns around criminality are well founded. Last year South Africans were $50m out of pocket after being conned by a bitcoin scammer. With no regulatory framework in place, there was little in the way of legal recourse.

Looking to international practice, the IFWG says other regulators have taken one of two approaches: putting in place a strict regulatory framework, or taking a “let things happen”, hands-off approach. It’s a double-edged sword: tight controls can stifle innovation, while a light touch could pave the way for reckless or criminal behaviour.

For its part, the IFWG says SA will follow a “limited regulatory framework” — in essence, looking at what regulations currently in effect would apply to the crypto market, then deciding if more are needed.

The group says this loose framework will come into being in three phases. First, crypto service providers will need to register with a regulator, most likely the FIC, which has the mandate to track criminal activity in the financial sector. These providers should also conduct customer due diligence and continually monitor crypto trades, filing reports on suspect and unusual transactions.

Once the registration phase is completed, the authorities will review the existing regulatory framework, and amend it as needed.

Finally, the amended regulatory framework will need to be assessed to determine if it provides sufficient safeguards to protect customers and service providers.

This cautious approach has been met with approval from some in the local crypto market.

“[The regulators] are not proposing to regulate cryptocurrency itself, but rather those persons or entities that provide services involving cryptocurrency,” says Marius Reitz, country manager of Luno, a Naspers-backed company that offers a range of crypto services.

“Luno welcomes this approach, as it will provide consumers or potential consumers of those services with the comfort that the service [provider] they are dealing with is held to defined regulatory standards.”