The recent announcement that the South African Reserve Bank (SARB) will soon begin regulating crypto transactions should come as no surprise to crypto investors or crypto services providers. This is according to Thomas Lobban, Legal Manager, Cross-Border Taxation at Tax Consulting South Africa.
"While we welcome regulation, we're keen, like the crypto community, to see progressive policies that stimulate interest in crypto investment rather than dampen it," he says.
The right policies, asserts Lobban, will protect investors, enable crypto investment to flourish in South Africa and promote much needed economic growth.
As part of PSG's Think Big Series, aired on 12 July 2022, SARB Deputy Governor Kuben Naidoo said the bank had reversed its position that it would not regulate the crypto industry. It is now working towards introducing a framework to govern crypto transactions, with controls being phased in over the next 12 to 18 months.
However, the Intergovernmental Fintech Working Group (IFWG) has already spent several years researching the regulation of crypto, indicating this move was always a probability. What was not known was what form it would take.
"Now we know crypto will be seen as a financial product with all the associated controls and requirements in place, including FIC, tax and exchange control compliance," says Lobban. FIC is the Financial Intelligence Centre, a government entity that monitors financial transactions in South Africa to identify criminal activity, money laundering and financing of terrorism.
Naidoo also noted that crypto transactions should carry a health warning, alerting investors to the risks involved in trading it.
In addition, Naidoo said that crypto exchanges will have to comply with exchange control laws, such as anti-money laundering (AML) and combating the financing of terrorism (CFT) rules.
Greg Rodrigues, Chief Financial Officer for crypto-investment platform Revix, is optimistic about regulation of the industry, saying it is already something his company takes seriously.
"For AML/CFT, we have engaged with regulatory bodies in Germany, Switzerland, Austria and the UK over the past two years to make sure our policies are in line with global best practice," he says.
Regulation around these controls is critical to credibility and growth as they create greater confidence in the market and attract new investors.
Like Lobban, Rodrigues wants policies that serve the industry and its investors instead of scaring them away. "Crypto is global and highly fluid, tending to flow into markets where regulations are welcoming, and just as easily out of those that are not," he says.
Policies that protect investors without overburdening them, especially institutional investors, could see funds stream into South Africa while growing the country's burgeoning crypto ecosystem.
Building on the experience of others
Crypto regulation may increase monitoring but will also protect consumers from illegitimate operators and crypto services providers, and hopefully help prevent the large-scale fraud to which South Africa is constantly exposed.
According to Rodrigues, an important factor regulators should consider is crypto ownership and crypto custody. "We need external independent verification that crypto services providers actually do hold assets on behalf of their clients that they say they do and that these are secured," he says.
Lobban and Rodrigues agree that South Africa is behind the world in terms of crypto regulation but this affords SARB the opportunity to study jurisdictions that have successfully regulated their crypto market without impeding its growth.
"SARB also needs to engage in public consultation with crypto service providers, investors and other stakeholders to ensure the policies it develops are informed by the interests of all parties who will be affected by them," says Lobban. This should instil a more deeply integrated crypto investment culture in South Africa.