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South African exchanges hail new ‘crypto is a financial asset’ ruling

The Reserve Bank of South Africa is set to begin regulating cryptocurrencies as financial assets over the next 18 months, with exchanges anticipating the move will spur adoption in the country.

The move to classify cryptocurrencies as financial assets rather than currency has been discussed by the South African Reserve Bank (SARB) for some time. Deputy Governor Kuben Chetty confirmed in an online chat July 11 that the new regulations would come into effect over the next year.

The cryptocurrency space has been left to develop organically in South Africa without clear regulations being issued by the SARB until recently. The country has emerged as a leader in cryptocurrency adoption, with it being estimated that more than 6 million South Africans own cryptocurrencies.

Now that the SARB has finally taken a stand on the ecosystem, exchanges, traders and investors can begin to take stock of the impact. Cointelegraph reached out to prominent exchanges operating in the country to gauge perceptions of the SARB’s regulatory stance.

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Marius Reitz, general manager for Africa at global cryptocurrency exchange Luno, has been a proponent of clear regulatory parameters for the cryptocurrency industry. In correspondence with Cointelegraph, Reitz welcomed the regulatory move and believes it will create a safer environment for users in the country:

“Crypto Asset Service Providers (CASPs) will need to purchase FSP licenses and it will be easier for the public to identify a trusted and licensed platform. It will create a barrier to entry for these platforms with no regard for the safety of customer funds and customer information.”

Reitz said Luno is in a fortunate position to forestall regulatory changes in South Africa as the company operates in a variety of markets worldwide that already have stringent regulatory guidelines such as Malaysia and Singapore.

The Luno GM for Africa said compliance with new regulatory parameters would not require incremental changes to its processes, barring country-specific nuances. Luno already carries out KYC checks, sanctions screening and anti-money laundering (AML) and counter-terrorism financing (CTF) measures.

Reitz also suggested that more exchanges could use proof of reserve verification. Although not required by law, Luno conducted an audit of its crypto holdings to confirm custody of clients’ assets and provide clients with an additional level of confidence.

All is also business as usual for VALR, another South African cryptocurrency exchange that has quickly become a trusted platform for local crypto traders and users. CEO Farzam Ehsani told Cointelegraph that the company is already acting as a regulated entity, implementing KYC checks and a risk management and compliance program.

VALR also has AML and CTF policies and has worked with government agencies to combat illicit money trafficking. Ehsani was confident that developing regulations for space would not lead to stifling controls as the industry would fall under the purview of the Financial Intelligence Centre:

“VALR is already registered with the Financial Intelligence Center and we have worked with the FIC for many years, so any official regulatory framework in this regard will only formalize what VALR already has.”

The SARB continues to explore the potential use of a central bank digital currency (CBDC) as part of its Project Khokha initiative. A number of prominent players from the traditional banking sector in South Africa have been actively involved in testing a proof of concept for the proposed CBDC settlement scheme.