SARB regulation will weed out bad actors, say crypto players

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 15 Jul 2022

Local crypto-currency exchanges have largely welcomed the move by the South African Reserve Bank (SARB) to regulate their industry.

The crypto players believe the move will bring legitimacy and will be vital in weeding out the bad actors in the burgeoning sector.

After years of taking the stance that it would not regulate the crypto-currency industry, the central bank this week announced it has re-examined its previous position and is now working to introduce a regulatory framework to govern crypto transactions in the country.

Kuben Naidoo, deputy governor of the SARB and a member of the Monetary Policy Committee, said the central bank’s thinking on crypto-currencies has evolved, and that it now views it as a type of asset and believes it should be regulated as such.

However, he elaborated that the role of the SARB, as it looks to regulate the industry, is not purposed towards helping users to mitigate market risks, or to “pick winners and losers”.

This, as the price of crypto-currencies, such as Bitcoin, has continued to be volatile.

SARB is primarily concerned with implementing a regulatory framework that ensures anti-money-laundering legislation and exchange controls are adhered to, just as it is for investment and trading in other financial assets.

Responsible regulation

Responding to the new development, South African crypto exchanges say regulation will also safeguard traders against crypto scams.

Jonathan Ovadia, CEO of Ovex, says regulation is always very positive for new industries.

“Unfortunately, there are a lot of bad actors in the crypto space because of its decentralised, permissionless nature. Regulation will weed out these bad actors, protect consumers and give the industry as a whole a much better image. We’re looking very forward to responsible regulation,” Ovadia says.

Farzam Ehsani, co-founder and CEO of VALR, says the crypto platform has always been a proponent of appropriate regulatory frameworks and “we look forward to working with the South African regulators to ensure the crypto-currency industry is held to the highest standards, particularly when it comes to protecting the public”.

According to Ehsani, VALR is already conducting itself as a regulated entity. “We conduct ‘know your customer’ checks on all our customers; we have an experienced compliance team that implements our risk management and compliance programme; we have anti-money-laundering and counter-terrorism financing policies and procedures in place; and we work with the authorities to combat any illicit movement of funds.

“In short, VALR has been ready for a regulatory framework for many years and we welcome regulatory progress in the crypto industry.”

He believes an appropriate regulatory framework should not cause any disruption to the industry.

“Well-formed regulation should promote innovation and progress while protecting the interests of the public and society at large. Poorly formed regulation, on the other hand, would have adverse effects not only on the industry, but on employment, tax revenues for the country, and South Africa’s ability to attract capital and talent to our shores.

“VALR and the rest of the crypto industry are engaging with the regulators and we are hopeful to have a regulatory framework that is well thought-out, meeting the objectives of the regulators, while allowing the industry to meaningfully contribute to South Africa's employment, the fiscus and foreign direct investment.”

Identifying trusted platforms

Luno also welcomes the move to regulate crypto as a financial asset and sees it as good for the crypto industry.

Marius Reitz, Luno GM for Africa, says the move will require crypto asset service providers to obtain Financial Services Provider licences and will be easier for the public to identify a trusted and licensed platform.

“We believe that clear guidelines in South Africa (and globally) will lead to wider adoption by enhancing stability and trust in the market. It will also help protect market participants from crypto providers who are not compliant with regulations,” Reitz says.

Once regulation is introduced in South Africa, compliance will not require a step-change in terms of how things are done at Luno, he notes.

“We already hold ourselves to regulated standards; for instance, Luno is already registered with the FIC [Financial Intelligence Centre] on a voluntary basis. Luno is in the fortunate position that we operate in a number of markets globally, some of which already have regulatory regimes in place: Malaysia and Singapore.

“Luno has been working with the SARB, which has taken a proactive approach by forming the Crypto Assets Regulatory Working Group and including industry in its discussions from the very beginning.”

Says Henco Vorstman of ChainEX: “We think regulating the crypto market in SA is needed because it will pave the way for more solid projects to be built that will have real life solutions to problems South Africans face.”

Vorstman says South Africa has been plagued by scams over the last couple of years and regulating the market will make it safer for all investors.

However, he concludes: “We just hope that they do not over-regulate the market.”