Regulation
South Africa adopts flexible rules to drive financial innovation
Jul 5, 2024 at 5:12 PM
Updated: Jul 5, 2024 at 6:11 PM
3 minute read
South Africa’s financial conduct regulator aims to foster innovation while protecting consumers as it continues its cryptocurrency licensing efforts.
Image Credit: FSCA
The Commissioner of the Financial Sector Conduct Authority (FSCA), Unathi Kamlana, delivered a broad public lecture at the North-West University on 26 June 2024, addressing the topic South Africa approach aimed at finding a balance between promoting innovation in the financial sector and maintaining effective regulatory oversight.
Stay up to date with the latest blockchain developments in Africa
Driving the news
The FSCA chief has done it clear that his office recognizes its role in promoting innovation in the financial sector, while protecting consumers and the integrity of the financial system.
The Economic Impact of Cryptocurrencies
The Commissioner acknowledged the economic impact of crypto innovation, citing the creation of new sub-sectors and industries.
“Cryptography and blockchain technology have not only created a new asset class, but have also driven significant investment in new areas such as decentralized finance (DeFi) and blockchain infrastructure,” he said.
- “For example, countries that have embraced blockchain technology, such as Switzerland, … have seen a surge in startup activity and investment, positioning themselves as global leaders in financial innovation.”
- Kamlana said her team’s progressive approach to cryptocurrency regulation has had a similar effect in South Africa, where over 300 cryptocurrency license applications have been received.
- However, he also mentioned the Mirror Trading International (MTI) scandal as an example of the risks posed by unregulated crypto schemes, underscoring the need for robust oversight.
Key Quote
“The future requires that as regulators we should be both proactive and adaptable, continually evolving our approaches to keep pace with technological advances. This will involve adopting new regulatory frameworks, using advanced technologies for supervision, and maintaining a flexible mindset to accommodate rapid changes in the industry.”
Stay up to date with the latest blockchain developments in Africa
Principles and regulation
- Kamlana said that the FSCA is now a results-focused and principles-based regulator.
“We are also moving to an outcomes-focused and principles-based regulatory approach, focusing on ensuring that customers are treated fairly rather than prescribing detailed rules.”
- The two concepts (results-focused and principles-based) regulation) are interconnected. An academic review by Julia Black of the London School of Economics and Political Science and Martyn Hopper and Christa Band of Herbert Smith LLP places outcome-focused regulation as one of three elements of principles-based regulation.
“Principles-based regulation means moving away from reliance on detailed, prescriptive rules and toward relying more on high-level, broadly defined rules or principles to set the standards by which regulated firms must conduct business,” the authors say. he wrote.
- The authors listed three elements of regulation based on broad principles rather than detailed rules, performance-based regulation, and increased senior management accountability.
- Broad standards favor high-level, broadly established rules over detailed ones. Outcome-based regulation focuses on achieving desired outcomes for consumers and financial systems rather than processes. Increased senior management accountability aims to hold executives accountable for regulatory compliance.
Of note: The FSCA regulation also places significant oversight responsibilities on “key individuals,” which essentially include senior management. In a recent publication of regulatory actionsthe regulator reiterated its seriousness in holding key people to account.
Because matter
South Africa’s approach to cryptocurrency regulation, outlined by Commissioner Kamlana, represents a thoughtful attempt to foster financial innovation while protecting consumers and maintaining financial stability.
- The strategy is particularly crucial given South Africa’s current state of affairs on The FATF Grey List and global concerns about cryptocurrency-related financial crimes.
- By fostering a regulatory environment that supports responsible innovation, South Africa is positioning itself as a potential leader in cryptocurrency development in Africa.
- As South Africa continues to refine its cryptocurrency regulatory framework, Kamlana’s insights could serve as a valuable roadmap for other African nations struggling to provide a supportive regulatory framework for cryptocurrencies.
Stay up to date with the latest blockchain developments in Africa