South Africa to Regulate cryptocurrencyApril 13, 2018
The central bank of the country, South African Reserve Bank (SARB) is now laying the framework to regulate cryptocurrency through establishing a special unit in order to monitor any developments in the space. The primary task of the unit is to build a proof of concept for the Distributed Ledger Technology-based (DLT) interbank cleaning & settlement.
SARB is setting up a self-regulatory organization in order to control the fintech and cryptocurrency developments in South Africa. Though the bank doesn’t currently regulate or supervise cryptocurrencies, it has chosen to build an investigative unit to prevent risks and ensure investor protections. The establishment of the unit is dedicated to overseeing the industry’s further development.
South Africa is taking a different approach when it comes to cryptocurrency regulations. Instead of implementing regulations on cryptocurrencies that are based from the government, the country may adopt a self-regulatory approach instead.
The Finance Banking Practice Director at a law firm in the country, Bridget King stated that prematurely regulating cryptocurrencies could lead to the development and overall innovation of the industry. He also added that if laws are drafted according to the existing technology, which is still in the stage of growth, there’s a risk that it may have moved so much by the time that the legislation is enacted, that such legislation is out of date and requires to be updated almost immediately in order to be aligned with the latest technologies.
In another statement, Bidget King mentioned that the self-regulatory organization would actually be a non-government agency authorized to set up its own standards, directives and rules. It will take measures in order to prevent any systematic risk whole allowing the burgeoning cryptocurrency industry of South Africa to remain globally competitive.
The investigative unit, also called Project Khoka, will start by examining the use of Distributed Ledger Technology as a way to process secure electronic payments. For such purpose, the bank launched a proof-of-concept to replicate interbank clearing & settlement with the use of a system that is based on Ethereum Blockchain – Quorum.
The main aim of the project is to obtain a practical understanding of the Distributed Ledger Technologies through the development of the proof-of-concept in partnership with the banking market. The goal of the proof-of-content is to replicate interbank clearing & settlement on a Distributed Ledger Technology. This will enable the industry and SARB to access the possible risks and benefits of the DLTs.
It has been noted that in December 2017, the South African Revenue Services announced that it would explore different methods to trace digital currency trades to prosecute tax evasion. Then in January this year, the announced the setting up of a fintech task force. This will evaluate the bank’s stance towards private cryptocurrency and address the regulatory issues, which include exchanges control implications, financial stability, monetary policy and cleaning & settlement risks.