The South African Reserve Bank (SARB) may be interested in regulating cryptocurrency start-up, Centbee, on an experimental basis in coming months, said co-creator Lorien Gamaroff.
Centbee is set to be a new bitcoin wallet that will allow customers to pay for goods and services through scanning a QR code (barcode) with their cellphones, similar to SnapScan.
Gamaroff, who is also the founder of cryptocurrency consultation firm Bankymoon, emphasised that nothing has been decided or formalised yet.
“SARB is reluctant to make public statements about their thoughts in this space. It is new and strange to them and by committing to framework without exhaustive understanding of the implications, they might set a bad precedent,” he explained.
According to Gamaroff, they are working with SARB because they are building what essentially amounts to an alternative financial system – one without clearly defined regulations.
“There are exchange control and financial surveillance implications to our business model. We discuss these with the SARB to see if any red flags are raised before rolling out the technology,” he said.
Too soon for regulations?
Raymond de Villiers, keynote speaker and consultant who co-authored Fintech & the Digital Disruption of Financial Services, believes that regulation should wait until cryptocurrencies develop some internal cohesion and structure.
“At this point I think the cryptocurrency market is a little like a gold-rush in the Wild West or Johannesburg in the 19th century – regulation is not what is needed yet, or will work yet,” he said.
However, de Villiers thinks that if regulation is to be pursued it should first focus on the challenges of money laundering.
“Without regulation and management of the Dark Web - where many cryptocurrency transactions happen - any regulation of cryptocurrencies will face an uphill battle for the foreseeable future,” he said.
Regarding the effectiveness of experimental regulation, De Villiers insists, “Testing regulation in one space would be like throwing a stone into a steam – all that would happen is that the flow would divert around it.”
“If the Reserve Bank wants to test regulation it would need to be in a way that applies to all cryptocurrency wallets and a more effective place to start may be with the cryptocurrency exchanges themselves,” he said.
Regulating certain exchange companies
Gareth Grobler, digital currency expert and founder of Ice Cubed Exchange (Ice³X), said that further cryptocurrency regulation will be handled by the Financial Intelligence Centre (FIC).
In an attempt to combat money laundering, the FIC released a notice in September, 2016 stating that they plan to amend, among other things, Schedule 1 of the FIC Act to include certain virtual currency exchanges.
On 1 March, 2017 the FIC met with representatives of the virtual currency exchanges to discuss how the FIC Act could accommodate cryptocurrency exchanges.
“Our discussion with the representatives of the sector dealt specifically with the application of the FIC Act to this sector, and did not deal with the regulation of virtual currency exchanges in general,” said the FIC.
“The broader matter of the regulation of the sector is still under consideration by a number of role players and we cannot comment on how far that process has progressed or what is envisaged in future as far as that is concerned,” the FIC added.
Grobler believes that this will take a few years to implement and, according to him, “South Africa is not doing bad as they are further down the line than, for example, the United Kingdom.”
He added that, “Regulation brings credibility which, if you know what you are doing, turns into profit.”