The publication of the Crypto Assets Regulatory Working Group (CAR WG) position paper on 11 June 2021 confirmed that South Africa would bring crypto asset service providers (CASPs) within the regulatory perimeter. The intention is not to regulate the crypto assets per se, but rather to define the entities that provide services in respect of crypto assets. There is a particular focus on risks posed by crypto assets to financial stability, tax evasion, money laundering and financing of terrorism as well as to ordinary investors. The regulatory approach is largely based on approaches adopted by international standard setting bodies (where applicable). The position paper focuses exclusively on stable coins, which are crypto assets not linked to any underlying financial or economic asset or government/central bank-issued crypto assets. It does not address central bank issued digital currency (CBDC), one component of which was announced by the South African Reserve Bank (SARB) on 25 May 2021 (press release available here, and a list of frequently asked questions here)
The objectives of the CAR Working Group is to coordinate policy and regulatory approaches taken by regulators consistent with their respective mandates and to ensure a coherent and comprehensive South African policy stance on crypto assets and CASPs. While the position paper represents collective agreement by CAR WG member institutions on regulatory action needed to be taken, including implementing 25 recommendations, the dynamic and evolving nature of the crypto asset ecosystem will likely require periodical updating and refinement of the use cases contained in the paper. Therefore, the Working Group’s 2021 work plan includes establishing a formal monitoring and feedback mechanism to update and share progress made in implementing the recommendations, and to define, unpack and reflect the following three additional use cases for crypto assets in South Africa:
- Crypto asset lending/borrowing/saving/‘staking’ (i.e. on-lending your crypto asset holdings to a mining pool to secure the blockchain in return for rewards paid in crypto assets).
- Stablecoins and associated implications (including global stablecoins), especially from a governance, issuance process and audit perspective.
- Decentralised finance (DeFi) and associated activity such as the rise of non-fungible tokens (NFTs) and tokenised shares (i.e. ‘stokens’).