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Tuesday, January 15, 2019

Today the South African Reserve Bank released a “Consultation Paper”, including recommended regulatory guidelines for the cryptoasset industry. Although not quite official regulation just yet, it is a big step in the Reserve Bank’s journey towards formulating their position, and giving South Africans more clarity on how to go about their operations in the space.

SARB published the paper this morning with a short notice on their website here, and have called for members of the public to provide their opinion and comment by emailing sarb-fintech@resbank.co.za. While many in the industry hold to an anarcho-capitalist ideology, there can be little doubt that progressively liberal regulation can provide important safety mechanisms, protecting the public from falling prey to scams and ponzi schemes.

The reality is: Free market anarchists will find ways to achieve their goals, no matter the framework of regulation introduced in South Africa. The good news remains: Such regulation does not look to be heavy handed when it is set to be introduced in Q1 of 2019’s financial year, as per the consultation paper.

While you can download the paper directly as a PDF from this link here, we have drawn up 8 key points to take note of:

1- SARB recommends crypto assets like Bitcoin do not become legal tender, nor become “digital money” (Point 8.2)
With the exception of certain collector’s coins like Krugerrands; gold, silver, and platinum are all without legal tender status. So that’s no biggie. Hence the term “crypto assets”, and not “cryptocurrency”. (Personal note: I prefer the singular form “cryptoassets”).

2- SARB recommends trading platforms, buy & sell crypto services, crypto ATMs, crypto custodian wallets, and merchants accepting crypto as payment, all be registered with the FIC (Financial Intelligence Centre)
This one is going to cause quite a few to put their backs up, unfortunately. For so long this industry has been a wild west for businesses and individuals alike, and those who loathe bureaucracy will roll their eyes at this requirement. Remember though, this is still “recommendation phase”. If you have a recommendation on this matter, send them an email.

3- SARB aims to be proactive about crypto assets
And I think they are. Having first made official statements about Bitcoin and crypto assets back in 2014, and with their “Project Khokha”, the Reserve Bank clearly want to be prepared for what seems to be a worldwide trend toward blockchain and decentralised digital assets.

4- Due to the seriousness of “money”, SARB doesn’t want to delay the implementation of regulation, but rather “amend as the industry evolves”
We can all agree that money makes people do strange things. There is no doubting the psychological effect money has on people, and due to the seriousness of “money” in general, SARB want to ensure the space is properly regulated sooner rather than later, at the risk of getting things not quite spot on just yet, and instead “act and amend as innovation in the industry evolves” to quote the paper.

5- “South Africa does not currently intend to ban the buying, selling, or holding, of crypto assets, or to ban crypto assets for payments.”
A direct quote from Point 5.3.4 of the paper. While, in the point before, SARB’s working group does suggest that moving to ban cryptoassets isn’t out of the question, depending on the industry’s development and evolution internationally (i.e. if things turn sour from a diplomatic standpoint).

6- SARB doesn’t view cryptoassets as a significant industry… yet. They will when its overall market capitalisation reaches $1 trillion.
In Point 8.10.a of the paper, SARB states that anything below $1 trillion market cap isn’t majorly significant, but despite this, they want to continue to be proactive in their approach to the industry, because they do recognise its prominence and rise in influence in the world of finance.

7- SARB clearly recognise the threat that cryptoassets poses to central banks
From a purely competitive vantage point, SARB clearly state (in Point 4.2.2) that large numbers of the population moving to store their value in cryptoassets over traditional fiat deposit accounts would seriously threaten the wellbeing of central banks and their modus operandi, which could in turn negatively impact the economy. Hence, SARB does not recommend cryptoassets become legal tender. With this kind of statement and thinking, we can be lucky that the Reserve Bank is still so open-minded toward cryptoassets.

8- Overall, a progressive and comprehensive approach from one of the G20’s Reserve Banks
The bottomline is: South Africa is a serious player in the world economy (member of the G20 world economies), and for such a big hitter on the world stage, this is a promising outlook from its Reserve Bank. South Africa’s Reserve Bank are arguably one of the G20’s most progressive central banks in terms of their approach to innovation, especially blockchain/distributed ledger technology (dlt). We can be thankful that is the case, and they are making their own minds up in the regulation of the industry with important input from big players such as exchanges and development houses, rather than adopting heavy-handed approaches like that of the USA, China, India and even the UK.

As Paresh Daya says, “SARB forming a group like the IFWG (Intergovernmental Fintech Working Group) shows they are taking a proactive and not reactive approach to crypto assets in South Africa.

Daya is the Blockchain Strategist for Standard Bank, and former chairman of SA’s Financial Blockchain Consortium, and says that when he was asked to consult with SARB’s IFWG, he saw it as the Reserve Bank upholding their mandate of ensuring financial stability in SA, “If we truly want to witness adoption and critical mass of cryptoassets,” Daya says, “we take the institutional sector with us on this journey, which includes working closely with our government colleagues. I am happy to see that SARB has not taken a dogmatic approach to these regulations, but rather, is consulting with industry to gain insight into the best way to manage this new and exciting world of blockchain.

The significant cryptoasset exchanges in the South African landscape also acknowledge the progressive approach by SARB. Eugéne Etsebeth is a former technologist at the Reserve Bank, and has unique insight into their standpoint. Etsébeth, now COO at ICE3x Exchange, says “the policy proposals are astute and forward thinking. 2019 will be a watershed year for cryptoassets in South Africa.

Meanwhile, South Africa’s most prominent Bitcoin wallet provider Luno, welcomes the news on SARB’s consultation paper.

Marius Reitz, country manager for South Africa at Luno, sent us this statement on their position: “Luno welcomes future regulation in the industry, and believe it can have a very positive impact. Regulation ultimately brings clarity to businesses and consumers. It helps keep out fraudsters and other operators with low concern (or capabilities) to keep customer information and money safe.

Whatever your position on the paper is, we at SA Crypto encourage all enthusiasts to write in to the Reserve Bank and make their voice heard. Rather than negatively slate any form of regulation among your friends, if you have suggestions, make them heard and get emailing. If you’re in agreement and want to encourage the Reserve Bank on a job well done, then I’d highly recommend doing so.

Because, from where I’m standing, they seem to be doing the best they possibly can for all parties involved.