Thoughts on “Consultation paper on policy proposals for crypto assets”
This is a response to the paper published in South Africa on 2019–01–16 by The Financial Intelligence Centre (FIC), Financial Sector Conduct Authority (FSCA), National Treasury (NT), South African Revenue Service (SARS) and the South African Reserve Bank (SARB)
I do not reason it necessary that the SARB should supervise or regulate crypto assets. However, independent monitoring of the landscape, systems or intermediaries involved in the industry is necessary. Activities related to the acquisition, trading or use of crypto assets should continue to be conducted at the end users’ sole and independent risk with no recourse to the SARB.
The fact that the impetus behind the creation of Bitcoin was indisputably predicated on the pursuit of monetary freedom is reason enough to give broader context into understanding the rise of cryptocurrencies, in particular, the zeal propelling this relentless introduction of alternative forms of money that are free from the control of central banks and substitutes to government issued fiat currencies in order to establish a new frontier in free markets.
The associated disruptive effect on financial markets and institutions that crypto assets purportedly can cause and the supposed material impact on financial services or direct impact on economic activities such as payments, investments and capital raising, among other suggested claims are yet to be qualified, quantified and proven.
With respect to crypto assets not fitting neatly within the current regulatory framework, it is common sense that an innovation of such magnitude, being a completely new asset class and requiring new approaches and ways of thinking around value and exchange, would inevitably bring about this ‘unfitting’ state of affairs. That said, this should not panic the powers that be into implementing rushed and not thoroughly thought through regulatory frameworks around blockchain and cryptocurrencies until sufficient studies have been undertaken to back up the concerns since such a hurried approach could ultimately stifle innovation in a country that could potentially find a huge number of its citizens benefiting from this burgeoning industry and economy. The issuance of warnings without declaring cryptos illegal would prove the best approach presently and for the foreseeable future unless real evidence is brought forth to warrant a different course of action.
Evidently, in the absence of a legal and regulatory framework for South Africa, the acceptance of crypto assets for the payment of goods and services is still currently at the discretion of consumers and willing merchants which is great because this allows cultivation of a new form of transactional trust that is not state backed, and which reduces the burden on the state to shoulder a responsibility which it is clearly unequipped to effectively handle. It is true that crypto assets are successfully being used for online purchases or purchases at physical stores and the majority of crypto payment transactions in South Africa use the crypto asset Bitcoin as the medium of exchange. One can envision that over time, as adoption increases and the industry continues to innovate and come up with useful applications for blockchain technologies, multiple cryptocurrencies will eventually become part of the ecosystem.
Moving from Level 2 (Recommendations) to Level 3 (Guidance) or Level (Regulation) would be a premature move especially if done in the first quarter of 2019 as the suggested regulatory approach. An exercise of patience and pursuit of deeper learnings would be the rational approach to allow greater monitoring of developments around the globe with respect to similar issues and to allow dedicated experts with some degree of understanding of the blockchain space and the potential impact of the proliferation of cryptocurrency based economic activity to participate in the possible framework building discussions in order for all stakeholders to make more informed suggestions.
The decision by South Africa to not currently ban the buying, selling or holding of crypto assets, or to ban crypto assets for payments is commendable. The objectives agreed on for a crypto assets regulatory framework such as ensuring the safety and efficiency of the financial system and financial institutions, ensuring consumer and investor protection, combating illicit financial flows, money laundering and the financing of terrorism or tax are noble and should be followed through on the basis of sufficient study of the current state of affairs with a view to establish objective understandings, forecast trends and ultimately establish relevant and proper approaches to the questions of whether to regulate the landscape, and if so, how to do it appropriately.
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