Reserve Bank proposes tighter crypto-currency controls

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According to the central bank, globally regulators have not sufficiently addressed the phenomena of crypto assets.
According to the central bank, globally regulators have not sufficiently addressed the phenomena of crypto assets.

The South African Reserve Bank (SARB) has proposed tighter regulation of crypto-currencies in the country.

Amid the growing popularity of crypto-currencies, the central bank yesterday issued a consultation paper on policy proposals on crypto assets in SA.

The initial public statement on crypto assets was issued by National Treasury in 2014 as a joint initiative with the SARB, the Financial Sector Conduct Authority, the South African Revenue Service and the Financial Intelligence Centre.

According to SARB, the public statement warned members of the public about the risks associated with the use of crypto-currencies for the purpose of transacting or investing, and advised users to take extreme caution in this regard.

It further noted that no specific legislation or regulation exists for the use of crypto assets. Therefore, no legal protection or recourse is offered to users of, or investors in, crypto assets.

The central bank says crypto assets are a form of innovation that may impact the country's financial sector.

It points out that given the wide range of innovations across financial services, the existing regulatory architecture should be assessed to determine its appropriateness and effectiveness.

Crypto assets are considered to be an innovation that could materially impact financial services, as some view crypto assets as a new form of money that has a direct impact on economic activities such as payments, investments and capital raising, among other things, says SARB.

According to the central bank, globally regulators have not sufficiently addressed the phenomena of crypto assets.

"From conceptualisation to issues on definition, it remains an area that requires further clarity for regulators. Various approaches have been adopted, as some jurisdictions have explicitly allowed its use and trade, others have banned and restricted it, while most jurisdictions have followed the monitoring approach and issued warnings, but have not declared it illegal," it explains.

SARB points out that the financial system and all participants operate in a highly regulated area, which assists in ensuring a sound and safe financial system. However, it notes that crypto assets perform similar financial sector activities without the need for third-party intermediaries and without similar safety mechanisms.

"This leaves the crypto asset environment exposed to potential financial and consumer risks. Some of the perceived risks of crypto assets include an increase in undetected illicit financial flows, money laundering and terrorist financing risk, and consumer and investor protection concerns, including market manipulation and tax evasion.

"Other areas of risk include the circumvention of exchange controls, balance of payments reporting requirements, and financial stability risks."

SARB says the purpose of this consultation paper is to:

* Provide an overview of the perceived risks and benefits associated with crypto assets;
* Discuss the available regulatory approaches; and
* Present policy proposals to industry participants and stakeholders.

It notes that this consultation paper sets out proposals for a policy and regulatory response to crypto asset activities.

Subsequent to the first consultation initiative through an industry workshop, the paper will be released for broader public comment.

Upon conclusion of the consultation phase, the regulatory authorities will specify the way forward through a policy instrument such as a guidance note or position paper aimed for first quarter of 2019.

SARB is of the view that regulatory action should not be delayed until the most appropriate regulatory approach has become clear.

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