South Africa’s Intergovernmental Fintech Working Group Proposes Strict Crypto Regulations

Financial regulators in South Africa proposed on Tuesday that cryptocurrency needs a new legal status, attempting to make more comprehensive crypto laws for the state.

The policy paper released by the Intergovernmental Fintech Working Group (IFWG) in South Africa contains a survey which indicates that 10.7% of the people that use the internet in the country also make investments in Bitcoin (BTC).

This means the crypto asset sector needs to be regulated by introducing a licensure structure and monitoring the cash flow more closely. Other recommendations were made too. The paper describes crypto as:

“A crypto asset is a digital representation of value that is not issued by a central bank, but is traded, transferred and stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility, and applies cryptography techniques in the underlying technology.”

The IFWG No Longer Wants Crypto Assets and Activities to Be Unregulated

The IFWG consists of South Africa’s National Treasury, the South African Reserve Bank, Financial Sector Conduct Authority and others.

Its members agreed that innovations associated with crypto activities and assets can no longer be unregulated and that clear policy needs to be formed, so the policy paper is supposed to make the domestic crypto oversight rather strict.

FATF Recommendations to Be Respected

The Financial Action Task Force’s (FATF) new technologies, together with the Travel Rule and the anti-money laundering (AML) recommendations have to be respected. Crypto businesses would have to comply with international regulations and to be registered with the Financial Intelligence Center, which is the AML watchdog.

The use of crypto may face brand new formal restrictions. One example of these restrictions from its policy paper is the interdiction of using crypto as a settlement for the South African financial infrastructure. However, it could still be used for domestic payments, yet properly regulated. Here are IFWG’s exact words on this:

“Payments using crypto assets will, in the interim period, be subjected to a regulatory sandbox approach.”

Alignment with the Traditional Securities Governance of South Africa

When it comes to raising capital, the same policy paper says regulations on Initial Coin Offerings (ICOs) should be aligned as much as possible with the traditional securities governance of South Africa.

Even in this situation, utility tokens and payments would still need to have white papers submitted to regulators. The recommendations in the new policy paper are similar to the ones in another consultation paper on crypto that was released in January, last year. The current recommendations can receive comments until May 15.