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With bitcoin use on the rise, African countries eye regulations

Olusegun Abolaji Ogundeji | Sept. 23, 2015
The Nigerian central bank is set to propose new rules

Regulation will "protect the consumer and weed out all the bad players" and "give businesses (and investors) a lot more clarity and confidence in what can be done in the space, which in turn will attract more capital and innovation to the sector," said the head of business development and growth at South Africa’s BitX, Werner van Rooyen, in email. Meanwhile, "all serious bitcoin companies (at least those who want to be around for more than the next few years) self-regulate by mirroring the KYC (know your customer) and AML (anti money laundering) set in place for other financial institutions," he said.

Van Rooyan noted that BitX has already started to build a compliance framework, working closely with governments, regulators and financial institutions, focusing on adopting financial community best practices.

"We encourage a pragmatic approach that aims to balance the innovative potential of the technology whilst mitigating the key risks," van Rooyan said. "This allows businesses and startups the opportunity to grow, learn and explore the new terrain without overly burdensome regulation."

As an example of a practical approach, van Rooyan noted that some financial sector regulators adopt a "sandbox" approach, allowing regulation to kick in only once a certain size threshold -- such as number of users, or transaction volumes -- is met. He also suggested that the New York BitLicense Regulatory Framework and the now-dormant California Bitcoin Regulation Bill be studied for guidance. The California bill has been shelved, at least temporarily, but New York on Tuesday issued its first BitLicense.

With Unicef now accepting virtual currencies as donations and Barclays becoming the first U.K. bank to help charities accept bitcoin payments, there is an increasing need to regulate virtual currencies in parts of Africa where these and other multinational organizations have strong networks.

Banks across the world have been exploring bitcoin, trying to determine the potential uses for the digital currency and its underlying blockchain technology. The move by Barclays, with operations in 14 countries across Africa, could bring bitcoin into the mainstream as the bank stated that it has the "potential to change financial services."

In addition, a Commonwealth of Nations working group made up of Australia, Barbados, Kenya, Nigeria, Singapore and Tonga agreed after meeting International Monetary Fund and World Bank officials in London last month that virtual currencies could benefit member states and drive development. While recognizing that virtual currencies pose some risks, the group urged Commonweath members to "consider the applicability of their existing legal frameworks to virtual currencies and where appropriate they should consider adapting them or enacting new legislation to regulate virtual currencies."

With 18 African members, The Commonwealth Secretariat will create a digital repository of best practices and model regulations as part of an effort to assist members in developing policy.

 

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