South Africa’s proposed laws to allow domestic digital currency payments

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A group of South African regulators have released a report calling for stricter regulations of the digital currency industry. The country has seen a rising adoption of digital currencies which the regulators believe could pose a risk if not adequately monitored. In a new policy paper, the regulators called on legislative provisions that will pave the way for domestic payments using digital assets, but in a regulatory sandbox for accurate monitoring in the interim period.

In its “Position Paper on Crypto Assets”, the Intergovernmental Fintech Working Group (IFWG) suggested a number of measures that seek to bring the industry under the purview of the regulators. IFWG is made up of regulators including the South African Reserve Bank, the National Treasury and the Financial Sector Conduct Authority.

It called for an enabling legal framework for the regulated use of digital currencies for domestic payment purposes. It stated, “Payments using crypto assets will, in the interim period, be subjected to a regulatory sandbox approach, where the use of crypto assets for domestic payments may be assessed in a controlled environment to determine the consequences of potential adoption.”

The use of digital currencies will however be at a user’s own risk, the paper outlined.

IFWG also touched on other facets of the industry, including ICOs. It recommended that companies conducting an ICO must stick as strictly as possible to the country’s securities regulations. The issuer must release a detailed whitepaper that sets out “specific requirements and details on disclosures about the company, a governance plan, any agreement(s) between the customers and ICO issuers, comprehensive independent audits, and specific reports (to be confirmed) to regulators.”

Adoption of digital currencies in South Africa has been high, with a survey by Hootsuite ranking it top globally for digital currency owners relative to the number of Internet users. The survey found that over 10% of Internet users in the country own digital currencies. Regulators have taken note of this surge in adoption, making regulations all the more critical.

And while the watchdogs make an effort to regulate the industry, they recognize that this only works if other countries issue their own regulations. “The danger of a fragmented international regulatory approach and national authorities reacting with varying degrees of regulatory stringency is that crypto asset-related activities might potentially migrate towards jurisdictions that are regulated less stringently in a ‘race to the bottom’ as crypto assets are borderless. A coordinated global approach is therefore vital,” the paper stated.