After many years of waiting, it appears comprehensive crypto regulations are finally on the march in Africa. The early movers are Mauritius and Botswana, with both nations having recently passed crypto bills within a mere 54 days of each other.
First was Mauritius’ legislature, which passed the “Virtual Asset & Initial Token Offering Services Act” on December 10, 2021. Botswana’s National Assembly followed on February 1, 2022, unanimously passing the “Virtual Assets Bill”. Mauritius’ bill went into force on February 7, 2022, and Botswana’s bill is still awaiting Presidential assent.
The aim of the bills is to provide comprehensive legislative frameworks for the crypto sectors in their respective countries. Given these are the first such frameworks we’ve seen in the African context, it’s worth taking a look to see what we can learn about Africa’s emerging crypto regulatory landscape.
Rhyming Structures
Upon viewing the statutes from Mauritius and Botswana, the first observation that jumps out is how similar they look in their presentation. The bills differ in a lot of important respects, however, there is a significant overlap in how they are structured.
This is no coincidence as both bills were drafted to follow guidelines set out by the Financial Action Task Force (FATF) as to how countries should approach crypto regulation.
Created in 1989, FATF is an inter-governmental body that sets international standards and promotes the implementation of measures against money laundering and terrorist financing. Both Mauritius and Botswana’s statutes make clear in their preamble that the intention behind the bills is to follow the standards set by FATF.
VASPs at the Centre
At the centre of both bills is the key concept of “Virtual Asset Service Providers” (VASPs). On page 22 of its 2021 Guidance, FATF defines a VASP as:
Any natural or legal person who […] as a business conducts one or more of the following activities or operations for or on behalf of another natural or legal person:
- Exchange between virtual assets and fiat currencies;
- Exchange between one or more forms of virtual assets;
- Transfer of virtual assets;
- Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets;
- Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.
Mauritius’ bill tracks FATF’s definition of VASPs quite closely whereas Botswana’s bill uses its own definition. Such variation is permitted under the FATF guidelines and FATF emphasises that the end goal is for an “objectives-based implementation” of FATF’s recommendations rather than a rigid “one-size-fits-all regulatory regime across all jurisdictions”.
It should be noted that FATF does not consider Central Bank Digital Currencies (CBDCs) to be virtual assets, but rather a digital representation of fiat currency. This means providing the above services with respect to CBDCs only would not qualify a person as a VASP.
On page 10 of its 2021 Guidance, FATF acknowledges that CBDCs will likely give rise to their own types of money laundering and terrorist financing risks and that these should be addressed proactively as CBDCs launch.
Once a person or business entity falls into the definition of a VASP, then the accompanying obligations for VASPs described in Mauritius or Botswana’s bill attach as appropriate.
Such obligations include obtaining a license, registering and providing disclosure when conducting “initial token offerings”, maintaining records, submitting to monitoring from regulators and complying with various other regulations such as anti-money laundering rules.
Of course, passing bills is only part of the story. The other piece is how the statutes get implemented. Jurisdictions can have similar rules, but if the enforcement differs, the rules can produce completely different outcomes in practice.
As such, an area to watch going forward will be the type of crypto companies that are able to flourish under Mauritius and Botswana’s new regulatory regimes.
Who is Next?
In its 2021 Guidance, FATF stresses that crypto adoption is growing and its functionality is increasing, meaning governments need to take urgent action to regulate it.
As such, it is unlikely that Mauritius and Botswana will be the only African jurisdictions that pass crypto
legislation this year. Indeed, South Africa’s lawmakers have repeatedly indicated that regulations are coming soon.
In light of the approaches we have seen out of Mauritius and Botswana, it’ll be fascinating to see the
regulatory pathway that Africa’s second largest economy decides to follow.
