A timeline of key developments over the past year and a look at what comes next.
The conversation on how crypto should be regulated in South Africa (SA) has stretched over many years. Given the volume of chatter around this issue, it can be easy to lose track of where things currently stand. This article summarises the key developments that have happened over the past year and looks to what’s next.
IFWG’s Position Paper
On 11 June 2021, SA’s Intergovernmental Fintech Working Group (IFWG) published a position paper on crypto assets. Since it was published, the paper has been highly influential on the crypto regulatory agenda in SA.
The paper contained 25 recommendations that formed a roadmap for how crypto regulations should unfold in SA.
The recommendations fell into three main categories that can be summarised as: (i) applying SA’s AML/CFT framework to crypto, (ii) creating a framework to monitor cross-border financial flows relating to crypto and (iii) declaring crypto a financial product and integrating it into relevant financial sector legislation.
Following publication, the position paper served as a mandate for SA’s various regulators to begin implementing the 25 recommendations as appropriate.
National Treasury Budget Review
The next major development took place on 23 February 2022, when SA’s National Treasury released its 2022 budget review. Included in the review was a section on crypto assets as part of a larger financial sector update.
The crypto section referenced the IFWG’s position paper and highlighted three upcoming regulatory changes, with the first two expected to occur by the end of 2022.
The budget review outlined how crypto asset service providers (CASPs) would be included as accountable institutions under the Financial Intelligence Centre (FIC) Act to address AML/CFT concerns and to align the act with FATF’s global standards for virtual assets.
Second, the review covered how crypto assets would be declared as a financial product under the Financial Advisory and Intermediary Services Act, meaning that CASPs would be recognised under this act and subject to its requirements.
Finally, the review highlighted how monitoring and reporting of crypto asset transactions would be enhanced to comply with exchange control regulations. However, no specific timeline was provided for this third step.
An Updated Timeline
On 12 July 2022, a new flurry of media coverage was generated when the Deputy Governor of the South African Reserve Bank (SARB), Kuben Naidoo, attended a webinar hosted by PSG Konsult, a wealth management firm.
On the webinar, Naidoo reiterated the same themes from the IFWG paper and National Treasury budget review. The new information in the interview was a timeline of when SA’s crypto regulatory regime could be fully in place.
Acknowledging that the process was taking too long, Naidoo said he expected the process to take another 12-18 months.
Upcoming milestones identified by Naidoo include the Minister of Finance amending the relevant legislation to declare crypto a financial product, the Financial Sector Conduct Authority (FCSA) completing the regulatory framework for CASPs and SARB finalising the exchange control rules.
SARB’s Guidance Note: Don’t Unbank Crypto
Finally, on 15 August, SARB published new guidelines on how financial institutions should handle AML/CFT concerns when dealing with CASPs.
The Guidance Note stated that SARB was aware that certain banks in SA were terminating customer relationships due to (a) uncertainty regarding AML/CFT risks around CASPs and (b) the lack of formal regulatory requirements for CASPs.
The Guidance Note went on to recommend that financial institutions should avoid “wholesale termination” of relationships with CASPs and should only terminate relationships after “careful due diligence and consideration”.
After the note was published, the co-founder of VALR, Farzam Ehsani, took to Twitter to share his view on it. According to Ehsani, First National Bank terminated banking relationships with VALR exchange as well as other major SA crypto companies in 2019 and 2020.
Ehsani congratulated SARB on publishing the guidance which he described as “the gentlest way a regulator could say to its banks ‘don’t unbank the crypto industry’”.
What Comes Next?
Recall that Deputy Governor Naidoo highlighted the creation of a regulatory framework for CASPs as one of the missing pieces for the completion of SA’s crypto regulatory regime.
On 18 August, an update was provided by the FCSA – the regulator responsible for creating the framework highlighted by Naidoo.
Speaking at a webinar, Lyndwill Clarke, an FCSA official, indicated that SA’s draft crypto regulatory framework is in the process of being finalised and will be “published very soon”. Once published, there will be an opportunity for public feedback on the proposed regulations.
Following the comment period, the CASP regulations will be finalised. Soon thereafter and depending on when the relevant legislation is amended and SARB finalises the exchange control rules, SA’s full crypto regime will finally be complete. This entire process is what Naidoo said would take another 12-18 months in his July 2022 interview.
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