CAPE TOWN - The South African Reserve Bank (Sarb) has set up a team to monitor cryptocurrencies and FinTech developments to inform an appropriate policy framework and regulatory regime. The team is expected to assist Sarb in formulating an appropriate policy framework for the possible regulation of cryptocurrencies and FinTech innovations.
Cliffe Dekker Hofmeyr finance and banking practice director Bridget King however said that while banking and the national payment system fell within the Reserve Bank’s jurisdiction, cryptocurrencies were not suited to traditional centralised supervision.
“For this reason self-regulation through self-regulatory organisations (SROs) may be a more likely solution for the regulation of cryptocurrencies,” she explained.
An SRO is a non-governmental corporate body that is authorised to publish own rules, directives and industry standards for its members.
King said when regulating cryptocurrencies such as Bitcoin, Sarb would be most concerned with preventing systemic market risk and ensuring that the country’s financial system remained sound, efficient and competitive while embracing the developments in FinTech and cryptocurrencies.
She said due to the rate at which FinTech was changing and evolving on a daily basis, it could be better not to regulate the industry too soon.
“Regulating cryptocurrencies prematurely could have the negative consequence of throttling the growth and innovation of the industry. In addition, if laws are drafted based on existing technology, which is still in its growth phase, there is a risk that the technology may have moved so much by the time the legislation is enacted, that the legislation is obsolete or requires updating almost immediately to align with the latest technology,” said King.
However, she Sarb would have to weigh this up against the dangers of delaying the implementation of a FinTech regulatory framework too much. “The anonymity of cryptocurrencies, and the fact that transactions cannot be traced make the currency attractive to those engaged in criminal activities.
“Consumers urgently need to be protected against hackers and other threats to their investments and transactions, and the regulators have cautioned that there is no supervisory authority, ombud or regulator to hold accountable for lost or stolen virtual currency.”
Sarb has said that it would investigate the use of DTL as a means to process secure, electronic payments.
The central bank said the investigation, nicknamed “Project Khoka”, would be launched as an experiment to replicate interbank clearing and settlement using Quorum – an Ethereum enterprise system.
“The aim of this project is to gain a practical understanding of DLTs through the development of a proof of concept (POC) in collaboration with the banking industry. The objective of the POC is to replicate interbank clearing and settlement on a DLT which will allow the Sarb and industry to jointly assess the potential benefits and risks of DLTs,” Sarb said in a statement.