The South African Reserve Bank’s Senior Fintech Specialist Anrich Daseman took to the stage at Blockchain Africa 2020 amid much anticipation from the audience, many of whom are interested stakeholders in the industry looking for clarity on the direction the South African Reserve Bank will take on the the issue of cryptoassets.
As expected, Daseman took a balanced approach to his talk, ensuring that he didn’t come across as authoritarian or arrogant as one representing South Africa’s Central Bank. The purpose of Daseman’s talk was to give insight into what people could expect from the SARB’s regulatory framework that they plan to release in coming weeks.
The Fintech Specialist opened with the SARB’s definition of a “cryptoasset“:
“A digital representation or token of value that is not issued by a central bank, but traded, transferred or stored electronically by natural or legal persons for the purpose of payment, investment, or other form of utility for the user and applies cryptography in the underlying technology.”
From this introduction, Daseman explained three areas where the Reserve Bank’s IFWG (Intergovernmental Fintech Working Group) is currently focussing their efforts on:
- AML (Anti Money Laundering) and Terror Financing
- Consumer Protection
- Regulatory Arbitrage (Gaps in SA’s regulatory framework)
Within these three verticals, the SARB has the following five regulatory recommendations that they will be putting forward to the government to officially impose:
1. Cryptoasset service providers become accountable in terms of AML and CFT (combating the financing of terrorism)
Anrich Daseman explained that the SA Reserve Bank is investigating numerous terror financing operations that have used cryptoassets, and while they are aware that most cryptoasset transactions are not nefarious, it is important for consumers to understand that creating an accountable and transparent environment reduces the risk of terrorist activities globally, and ultimately saves lives.
2. Cryptoassets will likely be declared a financial product/service
This is one of the biggest announcements from the presentation, as it implies that there will be new tax laws imposed on cryptoassets, and it may lead to certain cryptos becoming legal tender.
3. Introduction of an exchange control regime for surveillance of cross border flows
This was another big one in the context of the presentation. The SARB are keenly aware that numerous crypto buyers in South Africa are purchasing digital assets in order to circumvent exchange controls. According to Daseman, this is why it’s important for the SARB to implement chain-surveillance to mitigate this excon circumnavigation.
4. No FMI interaction for money settlements
Financial Market Infrastructure (FMI) companies such as VISA or Cybrin ensure that credit cards and payment processing supplies like Zapper all operate as they should, but with cryptocurrency, such third party infrastructure isn’t always needed (depending on the blockchain and type of transaction), which is why it would seem the SARB realise that imposing merchants only sign-up with registered payment processors is a waste of time when their blockchain-enabled infrastructure doest this processing without them. Good move.
5. Monitoring programme for cryptoassets
The Reserve Bank clearly wants to have a very clear up-to-date picture of the crypto industry, and for them that means they need extensive monitoring tools.
In conclusion, Daseman said that the Reserve Bank’s paper should be published by approximately end of April, whereby key stakeholders and early-adopters in the industry will be able to review the regulation, as well as to propose changes.
The news of SARB implementing chain analytics for the purpose of monitoring exchange control would be of some concern to many in the crypto industry. Cryptoassets have always been a way for people to “get off the financial” grid, but Daseman argues it’s important that the laws of South Africa be implemented across all financial instruments. Although, this would be interesting to see play out in the light of the country’s proposed new exchange control laws.
Daseman closed his presentation by offering an opportunity for questions, which he may have regretted. He was grilled by a few libertarians in the audience, one in particular suggested that Bitcoin Futures should be allowed to be offered at the JSE. While Daseman reserved comment on that question, he did respond to another question about FNB closing the bank accounts of cryptocurrency companies by saying that the SARB “will not intervene in the relationship between a bank and its client,” he stated. “That decision is up to the individual bank, based on their own risk assessment. Hopefully our upcoming regulatory framework helps the banks make more informed decisions of this nature.”
And many will be waiting with eager anticipation for this regulatory framework indeed.