The South African Reserve Bank (SARB) has established a Financial Technology (Fintech) programme to assess the emergence of technological innovations in the financial sector and consider their regulatory implications.
In a statement issued on 13 February 2018, the SARB stated that it ‘takes a balanced approach to technological innovations, considering the potential benefits and risks of each innovation’. The programme has three main objectives, all aimed at assisting ‘in the formulation of appropriate policy frameworks for the possible regulation of Fintech’:
1. Reviewing the SARB’s position on private cryptocurrencies
The review will address regulatory issues like clearing and settlement, exchange control, monetary policy and financial stability and other issues like cybersecurity. Collaboration with other regulators is intended to address tax implications, consumer and investor protection, and money laundering. The SARB aims to complete the review in the second half of 2018.
2. Investigating innovation facilitators
The SARB’s equivalents in jurisdictions like the UK and Singapore have established innovation hubs, accelerators and regulatory sandboxes through with Fintech companies work with the regulators to test their ideas. The SARB has been interacting on an informal basis with Fintech companies and is considering whether to launch similar initiatives.
3. Launching a distributed ledger technology (DLT, or blockchain) experiment
Project Khokha is similar to the Monetary Authority of Singapore’s Project Ubin and will investigate interbank clearing and settlement on a distributed ledger. The SARB has appointed ConsenSys (a technology provider with experience on the Quorum, Ethereum-based, ledger) to develop a proof of concept in collaboration with the banking industry. This experiment is aimed at understanding the implications of using distributed ledger technology to transfer value and the SARB will release a public report on its findings during the second quarter of 2018. No decision has yet been made to move the national payments infrastructure onto a distributed ledger.
This is a sensible approach to Fintech regulation, in line with many other jurisdictions. Regulation (where appropriate) needs to be risk-based and technology neutral so that it remains relevant as the innovations move rapidly on.