South Africa authorities mull fresh approach to digital currency regulation

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Financial regulators in South Africa are considering a new approach to regulating digital currencies, following strong interest from retail investors in the country.

In a paper published last week by the government’s Intergovernmental Fintech Working Group (IFWG), the Crypto Assets Regulatory Working Group set out its proposals for a new framework for regulating the sector, with a focus on digital currency service providers.

The move is a significant shift from the previous position of South African authorities, which have generally preferred to remain at a distance from calls to regulate digital currency activities. Previous announcements from the regulator have focused only on warning investors about the risks of digital currencies, without engaging directly in attempts to regulate.

However, with digital currency markets in the country rising to as much as 2 billion rand in daily trading volumes, equivalent to $147 million, it is thought that the regulator is viewing its hands-off approach as increasingly untenable.

While the paper proposes a new regulatory regime, it remains of the view that digital currency is highly risky and volatile, suggesting the likelihood of speculators losing money remains high.

The document sets out six separate principles for regulating digital currency, with a focus on addressing the specific risk profile of different activities, comparative international approaches, and the need for ensuring financial literacy amongst consumers and retail investors.

The regulator also lays out some 25 recommendations for regulating digital currencies, addressing three main areas specific to anti-money laundering and terrorism financing, cross border dimensions, and the extent to which existing financial laws can be used in addressing the need for regulation.

The paper and its accompanying press release noted that the regulators consider decentralization to be a disadvantage, leaving consumers without access to a single point of redress in the case of error.

It remains to be seen how the new measures will shape up, and their impact on the emerging digital currency sector in South Africa.