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Crypto assets are to be treated as financial products in South Africa, to make it easier for regulators to monitor the market and help to safeguard consumers.
The Financial Sector Conduct Authority defined crypto assets as "a digital representation of value" in a gazette notice published on Wednesday. A crypto asset isn’t issued by the central bank, but can be traded, transferred or stored electronically for purposes of payment, investment or other forms of utility, according to the announcement.
The announcement is the first legal step that was required to bring the crypto-asset industry within the South African legal framework, said Brent Peterson, head of legal at Easy Crypto, a crypto exchange.
The declaration, which takes effect immediately, comes as governments around the world push to regulate cryptocurrencies to protect users from turbulent digital coins and fraudsters. US regulators and lawmakers are studying ways to guide the operation of stablecoins.
"The licensing requirements that will flow from this classification will drive high standards in the industry, particularly in relation to consumer protection, with potential investors easily able to identify those providers that satisfy regulatory requirements," Marius Reitz, general manager for Africa at crypto platform Luno, said in an emailed statement. "Another key benefit is that it should allow financial advisers to formally advise their clients on crypto investments."
In South Africa, where Global Web Index estimates about 15% of the population invested in Bitcoin in 2020, the nascent industry already saw collapses, including the demise of Mirror Trading International last year, with losses totaling about $1.2 billion. The South African Reserve Bank has been working with other regulators to recognise the coins as financial products in order to make them easier to monitor from a money-laundering and terror-financing perspective.
"This step would aid clarity, user protection and much-needed confidence in the ecosystem," said Hannes Wessels, country head for cryptocurrency exchange Binance South Africa.
—With assistance from David Malingha.