South Africa’s intentions to regulate the crypto industry follow El Salvador’s adoption of Bitcoin. The country’s financial authorities announced their plan to monitor cryptocurrency trading within the country. The panel in charge of regulating the cryptocurrency industry will include prominent officials of the South African government.
South Africa has one of the world’s largest cryptocurrency markets, with Luno being the most popular exchange platform in the country. Luno’s client base has steadily grown, with almost a million new users added in the preceding year. Currently, it is also one of the few exchanges that ensure legality to its users since the country’s crypto regulations remain unknown.
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As digital currencies shift from the outskirts of the finance world and into the mainstream, cryptocurrency service providers have come under increased scrutiny globally.
The Financial Sector Conduct Authority (FSCA) has said that crypto assets would be regulated gradually. The group’s main aims are to provide a framework for financial regulators to draft cryptocurrency rules as the government attempts to decrease fraud and improve cross-border flow management. They did, however, emphasise that, with or without regulation, crypto assets would remain risky and volatile.
(FSCA) is also considering classifying cryptocurrencies as financial products, bringing them within the regulatory body’s jurisdiction. They cautioned of the “high-risk nature” of investing in crypto-assets and expressed reservations about the appropriateness of crypto assets as an asset class due to their “underlying business structures.”
The South African Reserve Bank (SARB) announced that it investigates the suitability, practicality, and desirability of a central bank digital currency (CBDC) as an electronic legal tender for general-purpose retail use.
South Africa’s Intergovernmental Fintech Working Group (IFWG) released a statement revealing that the market abuse case called for stricter regulations. IFWG voiced their concerns that included the possible long-term influence on monetary policy instruments’ efficacy and financial stability resulting from developments such as, but not limited to, the establishment of rival payment systems. They also raised concern over capital flight overseas as a result of evading South African exchange restrictions.
The IFWG has released a proposal paper for regulating the crypto industry in South Africa. It suggested that crypto service providers be subjected to anti-money laundering rules, that financial-sector laws be applied, and that cross-border financial flows be monitored in the industry. The proposal is expected to advise regulators and offer the tools needed to commence implementation as indicated in the proposal.
The proposal’s first stage is expected to be the establishment of appropriate know-your-customer (KYC) standards for cryptocurrency exchanges and the development of mechanisms to prevent money laundering. The second phase will then entail the development of investor protection guidelines and regulations for managing the risk that banks face.
According to the IFWG, the growth of the crypto market must be actively monitored. This involves keeping up to date on developing worldwide best practices via standard-setting groups. It also emphasizes the necessity for consumers to improve their financial literacy as retail interest in digital currency rises.
IFWG recommended that cryptocurrency assets continue lacking in legal tender status and will not be recognised as electronic money. They added that the Prudential Authority should evaluate the proper supervisory and regulatory strategy for treating prudentially regulated financial institutions’ exposure to crypto assets, such as banks. Campaigns on digital financial literacy, including crypto-assets, should be considerably expanded by relevant parties.
The daily value of crypto-related transactions in South Africa increased to over 2 billion rands (147 million dollars) in early 2021. They made it clear that the plan did not endorse cryptocurrencies.
The crypto market is growing rapidly, and new developments continue to question the applicability of existing rules and regulations to emergent activity. So consumers are strongly advised to ensure that they completely understand the services and products they are being exposed to and the dangers connected with them.