The South African Reserve Bank (SARB) on Tuesday asked for public comment on a policy paper outlining the perceived risks and benefits associated with crypto assets, the available regulatory approaches around them and proposals to industry participants and stakeholders.

In 2014, the National Treasury warned members of the public about the risks associated with the use of crypto assets for transacting or investing. It noted that no specific legislation or regulation existed for their use and there was therefore no legal protection or recourse to users or investors.

The SARB, through the National Payment System Department, issued a position paper on crypto assets in the same year, highlighting the risks surrounding them such as money laundering and the financing of terrorism.

In the absence of a legal and regulatory framework for South Africa, the acceptance of crypto assets for the payment of goods and services is currently at the discretion of consumers and willing merchants. 

Crypto assets are used for online purchases or purchases at physical stores and the majority of crypto payment transactions in South Africa use Bitcoin as the medium of exchange.

The latest policy paper notes that while the financial system and all participants operate in a highly regulated area, which assists in ensuring a sound and safe financial system, crypto assets perform similar financial sector activities without the need for third-party intermediaries and without similar safety mechanisms.

This leaves the crypto asset environment exposed to potential financial and consumer risks.

It makes several proposals, including leaving crypto assets without legal tender status not recognising them as electronic money.

It recommends that an appropriate regulatory framework be developed through a registration process for crypto asset service providers, a review of existing regulatory frameworks followed by new regulatory requirements or amendments to existing regulations and an assessment of regulatory actions implemented.

"The objective of the registration process is to specifically gain further insights from the market participants," the policy paper says.

"The phased approach, starting with the registration requirement, could lead to formal authorisation and designation as a registered/licensed provider for crypto asset services operating in South Africa at a later stage."

The details of the registration process will be set out in a policy paper to be published by the SARB in 2019. This first phase is expected to be implemented by first quarter of 2019.

Other perceived risks of crypto assets include include tax evasion, the circumvention of exchange controls, balance of payments reporting requirements, and financial stability risks.