Feedback on SARB proposed Cryptocurrency Regulations
This is a clause by clause capture form for the proposed regulations, with the ability to add text.
8. Proposals for regulatory actions for crypto assets
Optional: Please provide comment on clause 8. Do you think 'crypto assets' is valid given prior use of 'virtual currencies', 'digital currencies', 'digital assets', 'convertible or non-convertible VCs' (2014 paper) etc
8.1 It is envisaged that the proposals will be implemented as appropriate by the relevant and respective South African regulatory authorities, and operationalised through the issuing of policy instruments. The proposals are as follows:
Optional: Please provide comment on clause 8.1.
8.2 It is recommended that crypto assets remain without legal tender status and are not recognised as electronic money either.
Optional: Please provide comment on clause 8.2. What if making cryptocurrencies legal tender was the most efficient way to bring them into the FICA regulations?
8.3 It is proposed that an appropriate regulatory framework is developed through three phases:
Optional: Please provide comment on clause 8.3. Do these 3 phases make sense? On what basis is this determined? What other models make more sense?
8.3.a. Phase 1: Registration process for crypto asset service providers.
Optional: Please provide comment on clause 8.3.a. Do you think there should be a registration process for crypto asset providers? What problem does it solve that can't be addressed by examining the public blockchain?
8.3.b. Phase 2: Review of existing regulatory frameworks followed by new regulatory requirements or amendments to existing regulations.
Optional: Please provide comment on clause 8.3.b. What regulatory frameworks need review or amendment? Can this process be hastened by identifying the relevant parts?
8.3.c. Phase 3: Assessment of regulatory actions implemented.
Optional: Please provide comment on clause 8.3.c.
8.4 A useful starting point for regulatory intervention at this stage is through registration. The objective of the registration process is to specifically gain further insights from the market participants. South African authorities propose to implement the registration requirements for crypto asset service providers, as defined below in paragraph 8.7. The phased approach, starting with the registration requirement, could lead to formal authorisation and designation as a registered/licensed provider for crypto asset services operating in South Africa at a later stage. The details of the registration process will be set out in a policy paper to be published by the SARB in 2019. This first phase is expected to be implemented by first quarter of 2019 and the subsequent phases will follow thereafter.
Optional: please provide comment on clause 8.4. This is a ridiculous request that makes no logical sense. If parties are not required to register as an FSP, why must they register for crypto? Highlight this stuff.
8.5 Following registration, in the second phase, authorities will assess whether crypto asset activities could fit into existing regulatory frameworks. Where no legal authority or mandate exists for certain crypto assets-related activities, the regulatory framework will be assessed to determine what amendments are required to bring the relevant activity into the supervisory ambit. Should it be impractical to amend existing regulations appropriately, new regulations can be drafted. The specific framework, the legislative amendments required, the supervisory approach, the services covered and the level of protection afforded will be addressed in this phase. Insights will be drawn from the approach taken regarding AML/CFT requirements, ensuring consistency in regulatory consideration.
Optional: please provide comment on clause 8.5.
8.6 A final phase will assess the effectiveness of the regulatory actions that were implemented and if the regulatory actions meet the intended objectives.
Optional: please provide comment on clause 8.6.
8.7 Registration is required for all entities performing the following crypto asset activities:
Optional: please provide comment on clause 8.7 or subclauses.
8.7.a. Crypto asset trading platforms (or any other entity facilitating crypto asset transactions):
Optional: please provide comment on clause 8.7.a or subclauses.
8.7.a.i. Provide intermediary services for the buying and selling crypto assets, including through the use of crypto asset vending machine facilities.
Optional: please provide comment on clause 8.7.a.i.
8.7.a.ii. Trading, conversion or exchange of fiat currency or other value into crypto assets.
Optional: please provide comment on clause 8.7.a.ii.
8.7.a.iii. Trading, conversion or exchange of crypto assets into fiat currency or other value.
Optional: please provide comment on clause 8.7.a.iii.
8.7.a.iv. Trading, conversion or exchange of crypto assets into other crypto assets.
Optional: please provide comment on clause 8.7.a.iv.
8.7.b. Crypto asset digital wallet providers (custodial wallets)
Optional: please provide comment on clause 8.7.b.
8.7.b.i. Entity offering a software program with the ability to store private and public keys that are used to interact with various digital protocols that enable the user to send and receive crypto assets with the ability to monitor balances.
Optional: please provide comment on clause 8.7.b.i.
8.7.c. Crypto asset safe custody service providers (custodial services)
Optional: please provide comment on clause 8.7.c.
8.7.c.i. Safeguarding, storing, holding or maintaining custody of crypto assets belonging to another party.
Optional: please provide comment on clause 8.7.c.i.
8.7.d. Crypto asset payment service providers
Optional: please provide comment on clause 8.7.d.
8.7.d.i. All payment services provided when using crypto assets as a medium of exchange
Optional: please provide comment on clause 8.7.d.i.
8.8 It is recommended that the following entities are registered at a central point, as stipulated by the Crypto Assets Regulatory Working Group of the IFWG:
Optional: please provide comment on clause 8.8
8.8.a. Crypto asset trading platforms, and vending machine owners and providers.
Optional: please provide comment on clause 8.8.a - should these parties be registered? If not why not?
8.8.b. Crypto asset digital wallet providers.
Optional: please provide comment on clause 8.8.b - does it make sense to require wallet providers be registered? What if they're overseas and simply ignore the requirement?
8.8.c. Crypto asset safe custody service providers (custodians).
Optional: please provide comment on clause 8.8.c - does this include hardware wallet providers? What purpose is there in storing their information. They can't unlock wallets or provide information that isn't already public.
8.8.d. Crypto asset payment service providers.
Optional: please provide comment on clause 8.8.d. An example here is payfast, if they don't need to register as an FSP, why would they need to register for crypto?
8.9 It is recommended that crypto asset service providers be required to comply with AML/CFT provisions of the Financial Intelligence Centre Act 38 0f 2001 (FIC Act). These provisions would, among other things, require crypto asset service providers to meet the following obligations:
Optional: please provide comment on clause 8.9
8.9.a. It is recommended that all crypto asset service providers register with the FIC; conduct customer due diligence, including ongoing monitoring; keep records; and file reports on suspicious and unusual transactions, cash transactions of R25 000.00 and above and of control of property that is linked to terrorist activity or terrorist organisations.
Optional: please provide comment on clause 8.9.a.
8.9.b. Institutions that are subject to the requirements of the FIC Act must apply a risk-based approach in their implementation of measures to meet these requirements. This includes the ability to distinguish between different categories of risk and to apply enhanced customer due diligence where business with customers is deemed as higher risk and simplified customer due diligence where business with customers is deemed as lower risk.
Optional: please provide comment on clause 8.9.b.
8.9.c. South Africa further proposes that compliance by crypto asset service providers with obligations pursuant to the FIC Act be monitored and that remedial actions be required of crypto asset service providers that fail to meet these requirements. In egregious cases of non-compliance with these requirements or in cases where remedial actions do not have the desired effect of improving compliance with the relevant requirements, administrative sanctions may be imposed.
Optional: please provide comment on clause 8.9.c.
8.10 South Africa proposes to continue monitoring crypto assets through the Crypto Assets Regulatory Working Group and to define the specific focus of crypto assets monitoring as follows:
Optional: please provide comment on clause 8.10.
8.10.a. Monitoring the overall market capitalisation of crypto assets: As mentioned earlier, a total global crypto assets market capitalisation of US$1 trillion will not be considered as systemic by South Africa, but this will be the first level that could indicate potential significance. However, South Africa reiterates its intention to be proactive with regard to crypto assets, and will not wait until this level is reached before it starts preparing for the possible eventuality of crypto assets achieving systemic significance in future.
Optional: please provide comment on clause 8.10.a
8.10.b. Monitoring crypto asset trading platforms domiciled in South Africa through reporting: This will be done by monitoring issues including, but not limited to, the flow of funds from fiat into crypto and vice versa, functions performed, services offered, crypto assets trading volume, crypto assets traded, number of customers, insurance obtained, governance mechanisms, and record-keeping of transactions. This will include monitoring the volume and value of off-chain transactions performed within the platform, and on-chain transactions where crypto asset transactions involve counterparties not affiliated with the exchange.
Optional: please provide comment on clause 8.10.b.
8.10.c. Monitoring the crypto asset payment service providers and the number of merchants/retailers accepting crypto assets as payment both in South Africa and internationally.
Optional: please provide comment on clause 8.10.c.
8.10.d. Monitoring the volume of crypto assets bought and sold via crypto asset vending machines.
Optional: please provide comment on clause 8.10.d.
8.11 South African regulatory authorities propose not to impose market entry conditions for registered entities at this stage.
Optional: please provide comment on clause 8.11.
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