African govts seek robust crypto regulation, market stability

African govts seek robust crypto regulation, market stability

Home to the second most crypto-currency holders in the world, Africa is in urgent need for greater consumer protection and regulation of the crypto industry, experts say, which has been highlighted by the collapse of the world’s third largest crypto exchange FTX and subsequent plunge in the prices of major crypto assets, most notably Bitcoin.

According to Chainalysis’ 2022 Global Crypto Adoption Index, three African countries — Nigeria, Morocco and Kenya — are among the top 20 countries using crypto-currencies and related services. While digital currencies promise to improve financial inclusion, the implementation of a regulatory framework is imperative. “The digital revolution we are witnessing will be the salvation of Africa,” says Mamadou Kwidjim Touré, founder and CEO of Ubuntu Tribe. Many others, however, do not share this optimism. “The risks from crypto assets are evident,” and therefore “Africa’s growing crypto market needs better regulations,” three industry experts argued in a recent IMF blog post that is based on the October 2022 Regional Economic Outlook for sub-Saharan Africa.

Only one-quarter of countries in sub-Saharan Africa formally regulate crypto. However, according to IMF data, two-thirds have implemented some restrictions and six countries — Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo — have banned crypto. Zimbabwe has ordered all banks to stop processing transactions and Liberia directed a local crypto startup to cease operations. Many people in Kenya, Nigeria, and South Africa — countries that have the highest number of users in Africa — use crypto assets for commercial payments, but their volatility makes them unsuitable as a store of value. Apart from the inherent price volatility, policymakers are also worried that cryptocurrencies can be used to transfer funds illegally out of the region and to circumvent local rules to prevent capital outflows.

To that end, South Africa has recently come up with new rules for crypto asset advertisements that will have to include warnings that investors could lose their money. Regulations governing the weighting and capital treatment of crypto-assets and tokenized deposits should come into effect by 1 January 2025, financial sector regulator the South African Reserve Bank (SARB) senior financial technology (fintech) analyst Gerhard van Deventer has noted. The South African Advertising Regulatory Board’s (ARB) Code of Advertising Practice (“ARB Code“) lays down a number of general principles relevant to all forms of advertising, most notably that advertisements for crypto assets in the country must now clearly state that investing in crypto assets may result in the loss of capital. Also “influencers” or “ambassadors” who promote crypto on their social media platforms are now required to comply with the rules set out in the Social Media Code.

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