The financial watchdog in South Africa, Financial Sector Conduct Authority (FSCA), has classified cryptocurrencies as financial products, under the financial advisory and intermediary services act. FSCA referred to crypto assets as a digital representation of value that uses Distributed Ledger Technology (DLT). In a released notice signed by Unathi Kamlana, FSCA Commissioner, cryptocurrencies were declared as financial products and their regulation is to commence with immediate effect from the date of the publication of the notice. Regulation plans include applying foreign exchange controls and giving licenses to crypto trading companies.
The desire to regulate crypto has been expressed by the South African authorities for the past few years. About 3 years ago, a group called the Inter-governmental Fintech Working Group (IFWG), which consists of the central bank, the treasury, and South Africa’s financial regulators published a paper that called for the development of a clear regulatory framework for cryptocurrencies.
Earlier this year, the South African Reserve Bank's (SARB) Deputy Governor Kuben Naidoo said South Africa will look to introduce a regulatory framework for crypto. It is rumoured that South Africa is also looking at creating the digital Rand, its reserve bank-issued currency, which will be pegged to the South African Rand. The currencies issued and regulated by Central Banks or Reserve Banks are generally called Central Bank Digital Currencies (CBDCs).
Kuben Naidoo, at a PSG Konsult Think Big Webinar in July 2022, said:
“Our view has changed and we now regard cryptocurrency as a financial asset, and we hope to regulate it as a financial asset”
FSCA believe that the recognition of cryptocurrencies as financial products is the first step towards protecting consumers. FSCA says the cryptocurrency industry has been aggressively marketing its products and services without any oversight on the quality of its products. According to the Chainalysis 2022 Global Crypto Adoption Index, South Africa is 30th in global crypto adoption. It is estimated that about 10% – 13% of South Africans own or trade cryptocurrencies.
UK Post-Brexit Economic Strategy Includes Crypto Regulation
In the UK, a proposed amendment in the new Financial Services and Market Bill has been passed. The bill, consisting of 20 separate measures and over 335 pages, includes cryptocurrency regulatory clauses proposed by a member of parliament Andrew Griffith. The House of Commons, the lower house of Parliament, sat on Tuesday, October 25 to hear the bill. Members of the House voted in favour of the bill.
The bill gives the Financial Conduct Authority (FCA) the power to regulate crypto assets under the regulatory principles in the Financial Services and Markets Act 2000. The Financial Services and Market Bill already seeks to add payment rules to stablecoins. and crypto-related businesses, requiring an FCA registration process and regulating crypto-related Ads.
The passage of this bill is coming just days after a new crypto-friendly Prime Minister, Rishi Sunak, was appointed following the resignation of Liz Truss. The UK, as well as the global crypto community, welcomed the news of the appointment of Sunak with delight. Rishi Sunak, during his time as finance minister under the administration of Prime Minister Boris Johnson, expressed the desire to turn the UK into a crypto hub.
Sunak’s appointment as Prime Minister and the passage of the bill to regulate digital assets have been considered a “sequel of events” that will work in favour of cryptocurrencies and their adoption in the UK and globally.
Crypto Regulatory Disparity
Cryptocurrencies continue to gain traction among investors and regulators all over the world. Its recognition as a new asset class has prompted regulatory bodies around the world to explore ways to regulate it. Different governments have taken different approaches in the regulation of cryptocurrencies; some governments have implemented “harsh” rules regarding owning, transferring, and trading digital assets; while others have set up special committees to study digital assets and their impact on the general finance and investment landscape. In most cases, governments who were previously “harsh” about activities related to cryptocurrencies have eased up some of their legislation and now seek instead to regulate this asset class by introducing new legislation.
In the US, the Justice Department with the Securities and Exchange Commission (SEC) have been working together on future cryptocurrency regulation to ensure consumer protection and more streamlined regulatory oversight. The Biden administration also instituted new rules in the administration’s infrastructure bill in which cryptocurrency exchanges are regarded as brokers and must comply with the relevant AML/CFT record-keeping obligations. In the new law, cryptocurrency exchanges are required to notify the IRS directly of crypto transactions; this way the IRS will be able to tax cryptocurrency traders appropriately.
In crypto-friendly climates like Singapore, the rules regarding the trade of cryptocurrencies are lax. Though cryptocurrencies are not yet treated as legal tenders in Singapore, crypto exchanges and cryptocurrency trading are legal. The government in Singapore has not yet backed or issued any cryptocurrency for retail use, but it has collaborated with blockchain firms to explore the use of Distributed Ledger Technology (DLT) for the clearing and settlement of payments and securities. Some of these crypto-friendly countries are now tightening their lax crypto laws and moving towards regulation.
Meanwhile, in China, Algeria, Bolivia and a few other crypto-unfriendly territories strict restrictions have been maintained regarding the ownership of cryptocurrencies. These governments cite concerns such as money laundering and financing of terrorism through the use of cryptocurrency, or just a blatant distaste for a currency not issued and regulated by their central bank.
El Salvador became the first country to pass a bill that made Bitcoin a legal tender in 2021; at the time, international monetary bodies including the IMF urged El Salvador to remove Bitcoin as a legal tender. In April 2022, The Central African Republic became the second country to make Bitcoin its official currency.
While there is a current disparity in how various governments treat cryptocurrencies, the regulation fabric of cryptocurrencies is being woven. As governments take measures to regulate digital assets and their brokerage, more governments could join in, thereby “thinning” the regulatory disparities; and then the ownership, transfer, and trade of cryptocurrencies will be globally backed by law.