The South African Reserve Bank (SARB) regards itself as having a responsibility to promote a sound and effectively regulated financial system. The SARB, therefore, has decided to try to take a balanced approach to technological innovations. This involves considering the potential benefits and risks of each innovation.
Against this background the SARB recently established its Financial Technology (FinTech) Programme to:
- assess the emergence of FinTech in a structured, strategic and organised manner
- consider its regulatory implications.
The SARB says its main goals are to track and analyse FinTech developments and to assist policymakers in formulating frameworks in response to these emerging innovations. In ths context the FinTech Programme will focus on three primary objectives:
- review cryptocurrencies
- investigate innovation facilitation
- experiment with distributed ledger (blockchain) technologies.
The first objective is to review the SARB’s position on private cryptocurrencies to inform an appropriate policy framework and regulatory regime. This review will address regulatory issues such as:
- clearing and settlement risks
- exchange control impacts
- monetary policy and financial stability
- other matters such as cybersecurity considerations.
Through collaboration with the other regulatory bodies, it will also address matters such as tax implications, consumer and investor protection, and money laundering activities. The SARB expects to complete the review in the second half of 2018.
The second objective is to investigate and decide on the applicability of innovation facilitators for the SARB. ‘Innovation facilitators’ is the SARB’s collective term for innovation hubs, regulatory sandboxes and accelerators.
The SARB hopes to have concluded its assessment of the appropriateness of innovation facilitators by the third quarter of 2018. It hopes to develop clear and transparent eligibility and participation criteria to assist in the consideration of applicants into a regulatory sandbox.
Distributed ledger (blockchain) technologies
The third objective is to launch Project Khokha. This will experiment with distributed ledger technologies (DLTs).
The aim of this project is to gain a practical understanding of DLTs through the development of a proof of concept (POC) in collaboration with the banking industry. The POC will seek to replicate interbank clearing and settlement on a DLT which will allow the SARB and industry to jointly assess the potential benefits and risks of DLTs.
The POC will involve the processing of wholesale payments using Quorum, an Ethereum enterprise DLT. The SARB is aware of multiple DLTs being experimented with globally. ConsenSys (expert on Quorum) is the technology partner which will assist the SARB in the design, setup of infrastructure and running of the POC.
According to the SARB, this does not imply a radical move to DLT for the country’s national payments infrastructure. It hopes to adopt, instead, a structured approach to understand the implication of using a tokenised asset on DLT technology to transfer value. The SARB aims to release a public report to explain all the findings, risks and benefits of the associated project during the second quarter of 2018.
What does this mean
In a country currently noted for its chaotic politics, the SARB is taking a measured, structured and comprehensive approach – with defined 2018 reporting objectives. This is a model that many other countries and their central banks would do well to follow (in practice, though equivalent activities are under way in many central banks, often there is neither the structure nor the commitment to reporting envisaged by the SARB).
ET looks forward to the outcomes. Enterprises should as well. The outputs by the SARB may provide more explicit value than local central banks choose to offer.