South African Reserve Bank Deputy Governor Kuben Naidoo said the country's view towards cryptocurrencies had changed and they would be regulated as financial assets.
South Africa will introduce a regulatory framework for cryptocurrencies next year, explained Kuben Naidoo, deputy governor of the South African Reserve Bank, during his participation in the seminar PSG Think Big Series 2022.
Speaking about the future of banking and cryptocurrencies, Naidoo acknowledged that these digital assets can be integrated into the mainstream, if a solid regulatory framework is established to manage risk.
The bank's deputy governor noted that the country is considering cryptocurrencies as a financial asset and plans to regulate them as such in the next 12 months, in order to allow for the development of innovation in a responsible manner.
“Our vision has changed and we now consider it as a financial asset”, Naidoo said in reference to crypto assets.
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South Africa sees potential in cryptocurrencies
Cryptocurrency regulation in South Africa, one of the most emerging markets for the crypto industry, has been a topic of great debate over the past few years, due to the great popularity that these digital assets have gained in the South African market.
According to Chainalysis, a blockchain intelligence and analytics firm, South Africa recorded one of the highest levels of cryptocurrency adoption worldwide in 2021, surpassing 1.200% growth.
The explosive rise in the use and adoption of cryptocurrencies by the South African population has led regulators to explore ways in which they can regulate and standardise this market.
According to Naidoo, recognizing cryptocurrencies as financial assets will lead to innovation and allow this new market to merge with the traditional system, while balancing the frenzy for crypto assets among its population.
Naidoo also clarified that the South African Reserve Bank has no intention of regulating cryptocurrencies as currencies or means of payment, due to the volatility that these digital assets experience.
However, he did acknowledge that cryptocurrencies can bring benefits and improvements to the current system, driving the digitalization of markets. Naidoo also noted that many of the cryptocurrencies currently in existence are backed by genuine assets or real economic activity.
FSA considers crypto assets to be financial assets
In 2020, the country's financial authority, the FSA, had presented a draft declaration on cryptocurrencies as financial products, subjecting them to the country's Financial Advisory and Intermediation Services Law (FAIS).
In the draft bill, the FSA described cryptoassets as “any digital representation of value that can be digitally traded or transferred, and that can be used for payment or investment purposes, but excluding digital representations of fiat currencies or securities which already fall within the definition of a financial product.”
Not picking winners or losers in the crypto market
The standardization that South Africa will implement in the coming months will place the supervision of cryptocurrencies under the jurisdiction of the country's Financial Intelligence Centre (FIA), which will ensure compliance with the Financial Action Task Force (FATF) standards and regulations to prevent financial crimes, such as money laundering, with digital assets.
In addition, the upcoming South African regulation will also include cryptocurrency exchanges and financial service providers with digital assets.
The new rules will allow the South African Reserve Bank to ensure that investors are aware of the risks they face when trading crypto assets, without having to pick “winners or losers” in the market, Naidoo said.
Continue reading: The FCSA wants to regulate the crypto market in South Africa, which grew 1.200% this year
