SA to confirm new cryptocurrency regulations

South Africa is moving closer to a new cryptocurrency regime. The Financial Sector Conduct Authority (FSCA) says it will confirm a new regulatory framework for these assets "shortly", while the banking regulator asked banks to work with crypto exchanges - instead of closing their accounts summarily.

The South African Reserve Bank’s Prudential Authority (PA) sent a guidance note to local and foreign banks operating locally, raising the issue of banks closing the accounts of crypto asset service providers. This was due to the risk banks face under money laundering regulations because of the lack of formal regulatory requirements for these providers.

The PA pointed out that there is a perception that the accounts of crypto service providers pose a higher risk for laundering money, violating sanctions and supporting other illicit activities.

But it suggested that banks should "risk categorise" crypto exchanges and their clients after conducting risk assessments. If the risk posed by a crypto service provider is too big, then banks can take steps to "de-risk", such as terminating the banking relationship after careful due diligence.

"Risk assessment does not necessarily imply that institutions should seek to avoid risk entirely," stated the PA in the note.

The FSCA confirmed that it is busy finalising long-awaited regulations for cryptocurrencies.

"The regulatory framework will go out for consultation first. We are in the process of finalising it. It will be published for consultation very soon," said the FSCA's head of consumer education, Lyndwill Clarke, on Thursday.

He said the framework should come with inputs from both the FSCA and the PA, which recently stated that it wants to declare crypto as a financial product. Clarke said the FSCA wants to get the input of crypto asset service providers too in designing the regulatory framework.

FSCA commissioner Unathi Kamlana said South Africa's policy and regulatory approach on cryptocurrencies was explicitly stated in the intergovernmental FinTech Working Group (IFWG) report published in 2021.

Regulation

In that June 2021 report, the IFWG recommended that SA starts regulating cryptocurrencies in a phased and structured approach. It made 25 recommendations on how to do so, but said that did not signal or suggest that the SA government endorsed crypto assets. Before that, the FSCA had also issued its own "health warning" about cryptocurrencies because it received large complaints from South African investors who have lost their savings through crypto-related investments.

Kamlana believes that many SA investors remain sceptical about crypto, and understandably so. Many don't have enough knowledge about these assets and the risks they pose. Many have lost their life savings due to scams or because they didn't understand the level of volatility posed by crypto.

"Some are under pressure either through lack of knowledge or because of the aggressive marketing we see in this space. There's also some misleading information in terms of these aggressive marketing campaigns. They find themselves either investing too much or overexposed to this asset class," said Kamlana.

He said the FSCA will communicate its regulatory position on how to deal with crypto "shortly".

The FSCA is the regulator that's supposed to set policy on the issue. But the PA has recently made bolder statements about how crypto should be recognised in South Africa. -Fin24