Local cryptocurrency trading platform Luno country manager Marius Reitz praises the South African Reserve Bank’s (SARB’s) approach to developing a regulatory response to cryptoassets in South Africa, which aims to protect cryptocurrency users and support the growth and development of the industry.
“The SARB follows an activity-based approach. It is not proposing to regulate cryptocurrencies per se, but rather those persons or entities that provide services involving virtual assets,” he says.
“Luno welcomes this approach, as it will provide consumers or potential consumers of those services with the comfort that the service they are dealing with are held to defined regulatory standards.”
Luno has been working with the SARB over the past five years and provided significant input for the regulator about cryptocurrencies and cryptoassets. The firm, which is the first local cryptocurrency trading platform, sought regulatory guidance from the SARB when it started in 2013.
“We took the decision to self-regulate in 2013 by applying the highest levels of ‘know your customer’, ‘antimoney laundering’ and ‘taking guidance from existing financial regulations’. We work closely with governments, banks, regulators and financial institutions around the world.
“A risk-based approach does not regulate the technology; this would stifle it. Rather, it protects the rights of users and the obligations of the company, in line with the Financial Intelligence Centre (FIC) Act.”
Cryptocurrency service providers must register with financial data body the FIC and adhere to its financial rules, including collecting, maintaining and updating customer information in the same way as banks and financial service providers, he adds.
“This regulatory approach provides the public, potential clients and service providers with greater clarity and confidence, as well as meeting antimoney laundering and similar international standards.”
Reitz emphasises that this means that financial technology companies must protect their clients’ information, and Luno has developed its capabilities in this regard. The proposed regulations will help keep out fraudsters and service providers with little concern for customer information and money or limited ability to keep the information and the momey safe.
He adds that the market capitalisation of cryptocurrencies is low and they do not pose systemic risks to financial stability.
“Reusing the existing regulations makes sense for this first version of cryptocurrency industry regulations, and is in line with the international regulatory focus on ‘know your customer’ and ‘antimoney laundering’. The SARB consulted widely, and with its international partners, including other central banks, before developing a regulatory response to cryptoassets.”
“We welcome the decision to implement antimoney laundering and the countering [of] the financing of terrorism measures that form part of the recent amendments to the global body Financial Action Task Force recommendations, and that all virtual asset providers register with the FIC.”
The SARB also suggested a central body where platform service providers would register, which could serve as a source of insight for regulators, act as a platform for stakeholder engagement and could include elements of a licensing regime, such as a central registration body, adds Reitz.
Client and investor protection is paramount for platforms and stakeholders in the industry. Therefore, the regulations aim to ensure that the platforms iss safe for people to use and combat illicit capital flows, concludes Reitz.