Digital assets encompass a whole lot more than just cryptocurrencies,”
stated Angela Itzikowitz, a key figure in banking and financial market regulation, setting the stage for a new Metaco Talks podcast episode.
Joined by Ashveen Gopee, Partner and Managing Director at PwC Legal Mauritius, the duo, with their extensive expertise in finance, regulation, fintech, and cybersecurity, explore the multifaceted world of digital assets in Mauritius, South Africa, and Kenya.
Host Katrin Koller, Product Director at Metaco, opened the discussion by highlighting the factors influencing cryptocurrency adoption in Africa and Asia, including rising inflation and the depreciation of fiat currencies. She pointed out, “the world of digital assets has so much more to it” as financial services globally innovate with blockchain technology amidst an evolving regulatory landscape.
Together, they delve into the evolving digital asset ecosystems of Mauritius, South Africa, and Kenya, navigating the complex regulatory developments.
The scope of digital assets beyond crypto
Cryptocurrencies are just one side of the coin for applications of blockchain, even though they were the first ones, the first use case and applications on blockchain.
Angela Itzikowitz emphasized that digital assets include a broader range than just cryptocurrencies, with crypto assets being a subset of digital assets. This includes non-fungible tokens (NFTs), tokenized securities or bonds, stablecoins, and Central Bank Digital Currencies (CBDCs) among others.
To define the term as such, she offered,
A digital asset is nothing more than a non-tangible asset that is created, stored, traded, and transferred in a digital form.
Ashveen Gopee shared that a virtual asset, a cryptocurrency or virtual asset as it’s legally called in Mauritius, is
A digital representation of value that may be digitally traded or transferred, and may be used for payment or investment purposes.
Now, these are the characteristics and the early definition of what a cryptocurrency was intended to do, by the inventor of cryptocurrencies, Satoshi Nakamoto. That has also been captured by the definition of the FATF (Financial Action Task Force).
Regulatory framework in Mauritius
Shifting focus to Mauritius, Ashveen detailed the country’s progressive approach to digital asset regulation through the Virtual Asset and Initial Token Offering Services Act (VAITOS).
He explained, “The VAITOS provides licenses and regulates virtual asset service provider activities. If you’re doing business in or from Mauritius, you have to apply for a license with the Financial Services Commission.” This Act signifies Mauritius’ commitment to aligning with international standards in regulating blockchain technologies.
Both speakers discussed the importance of guidance notes in shaping the regulatory environment. Ashveen shared an example concerning NFTs: “We’ve got a guidance note on NFTs, for example. This note categorizes NFTs and provides a clear indication of how the regulatory body is going to look at your token.” Such guidance plays a critical role in helping market participants navigate the regulatory landscape.
The path forward for South Africa
Angela provided a comparative perspective, noting that South Africa’s regulatory framework is less developed than Mauritius’. She advised,
Always test your offering, what it is you want to do in the South African market, against a raft of legislation.
This approach is vital in a landscape where specific regulations for different types of digital assets may not be in place.
Discussing South Africa’s ongoing efforts, Angela highlighted the importance of compliance and the challenges crypto asset service providers face. “It’s quite interesting… One of the keys is that digital assets and crypto assets are used interchangeably,” she said, emphasizing the need for clarity in regulation and the importance of understanding the subtle differences between various types of digital assets.
The dynamic regulatory environment in Mauritius and Kenya
In the ever-evolving domain of virtual assets, Ashveen Gopee reflected on Mauritius’ approach, highlighting the Financial Services Commission’s remarkable dynamism and willingness to consider innovative frameworks, such as potentially developing regulations for collateral of virtual assets and even contemplating a DAO (Decentralized Autonomous Organization) Act.
Furthermore, Angela brought into focus Kenya’s novel approach, where the authorities are engaging directly with the Blockchain Association of Kenya to collaboratively draft legislation on crypto assets, a move driven by competition and the desire for regulatory innovation on the African continent. This collaborative and forward-thinking attitude exemplifies the adaptive nature of regulatory bodies in emerging markets, striving to keep pace with the rapid developments in the digital asset space.
Understanding custodian roles in virtual asset regulation
Ashveen Gopee addressed an audience question about the roles and responsibilities of custodians. He clarified that custodians generally have control over virtual assets, a vital aspect in the regulatory framework. This control can vary depending on the nature of the custodianship, with some custodians having full control for quick trading and others operating under a shared control mechanism for safekeeping. Such a nuanced understanding of custodian roles reflects the complexity and evolving nature of virtual asset regulations.
Market response to crypto asset regulations
Angela Itzikowitz shared insights on how the market has received recent regulatory changes, particularly in the crypto asset space. Interestingly, the market has generally welcomed regulation, contrary to the initial hesitation. Industry players increasingly seek regulatory compliance, recognizing it as a mark of credibility and trustworthiness. This marks a shift from a preference for self-regulation to a desire for formal regulatory inclusion, signifying a maturing market, with players acknowledging the benefits of operating within a legal framework.
The critical role of AML in crypto asset management
Ashveen and Angela emphasized the importance of Anti-Money Laundering (AML) regulations. They discussed the challenges and responsibilities that exchanges and service providers face in complying with AML standards, including the identification of ultimate beneficial owners and screening against sanctions lists. These compliance requirements, while rigorous, are crucial for preventing the misuse of crypto assets in money laundering and other illicit activities.
Addressing the challenge of debanking
A significant concern raised was the issue of ‘debanking,’ where banks close accounts or refuse services to clients dealing in crypto assets due to perceived risks. Ashveen pointed out the counterproductive nature of debanking, as it could push transactions into less regulated spaces, like peer-to-peer platforms, inadvertently fostering environments conducive to money laundering. Both speakers advocated for a change in mindset within the banking sector, emphasizing the need for banks to adapt and integrate technology-savvy professionals to understand better and manage the intricacies of crypto asset transactions.
Based on the comprehensive insights shared during the podcast, it’s evident that the regulatory landscape for digital assets in Mauritius, South Africa, and Kenya is dynamic and increasingly sophisticated. The forward-thinking approaches, such as Mauritius’ VAITOS Act and Kenya’s collaborative efforts with the Blockchain Association, highlight the regions’ commitment to embracing technological advancements while ensuring robust regulatory frameworks. This evolving landscape underscores the need for ongoing dialogue and collaboration between regulators, industry players, and technological experts to navigate the complexities of digital asset regulation effectively. As the digital asset space continues to mature, its integration into the global financial system will hinge on balancing innovation with regulatory compliance, ensuring a secure and trustworthy environment for all stakeholders.
