The recent announcement that the South African Reserve Bank (SARB) would soon begin regulating crypto transactions wasn’t a surprise, but the right policies will protect investors, enable crypto investment to flourish in South Africa and promote much-needed economic growth, says 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," Lobban said.
He said the right policies would 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 July 12, SARB deputy governor Kuben Naidoo said the bank had reversed its position that it would not regulate the crypto industry. It was now working towards introducing a framework to govern crypto transactions, with controls being phased in over the next 12 to 18 months.
However, the Inter-governmental Fintech Working Group (IFWG) had 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.
Lobban said now they knew crypto would be seen as a financial product, with all the associated controls and requirements in place, including FIC, tax and exchange control compliance.
FIC is the Financial Intelligence Centre, a government entity that monitors financial transactions in South Africa to identify criminal activity, money laundering and the 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 crypto exchanges would have to comply with exchange-control laws, such as anti-money laundering (AML) and combating the financing of terrorism (CFT) rules.
Greg Rodrigues, the chief financial officer for crypto-investment platform Revix, was optimistic about regulation of the industry, saying it was already something his company took 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 said.
Regulation around these controls was critical to credibility and growth, as they create greater confidence in the market and attract new investors.
Like Lobban, Rodrigues wanted policies that served 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 said.
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.
Crypto regulation may increase monitoring, but would also protect consumers from illegitimate operators and crypto services providers, and hopefully help prevent the large-scale fraud to which South Africa was constantly exposed.
According to Rodrigues, an important factor regulators should consider was 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 said.
Lobban and Rodrigues agreed that South Africa was behind the world with regards to crypto regulation, but this afforded 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," Lobban said.
He said this should instil a more deeply integrated crypto-investment culture in South Africa.
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