The rapid development of financial technology (fintech) has seen the SA Reserve Bank establish a three-person fintech unit with the aim of assessing emerging technologies.
The unit reports directly to Francois Groepe, the deputy governor of the Reserve Bank.
Groepe said this unit was required to strategically review the emergence of fintech and assess the related user cases.
“Its primary responsibilities are expected to include the facilitation of the development of appropriate policy frameworks for the Sarb across the fintech domain.
“This will be done by robustly analysing both the pros and the cons of emerging fintech innovations as well as the appropriate regulatory responses to these developments,” the Reserve Bank’s Groepe said.
South Africa’s large and sophisticated financial sector is accentuated by a small but growing fintech industry.
Fintech in the country has affected five key banking functions of payments, deposits and lending, capital raising, investment management and market provisioning.
New kids on the block Discovery Bank, Bank Zero and Tyme are expected to robustly alter the financial services sector this year with their fintech offerings.
A number of alternative stock exchanges are also emerging - such as ZAR X and 4 Africa Exchange - with low-cost fee structures, real-time settlement and the ability to trade without going through a broker.
Dominique Collett, a senior investment executive at RMI Holdings, said banks needed to radically reduce their costs and migrate to digital channels if they hope to compete.
“Precedents are being set and the SA Reserve Bank is signing off on these processes so there is no reason not to adopt digital Fica,” Collet said.
Bitcoin, one spin-off of the fintech development has gained traction in South Africa and around the globe in the past five years.
After last year’s phenomenal rally, Bitcoin has started 2018 on a rocky note due in part to tougher regulations taken by countries across the world.
South Korea earlier this year said that it plans to ban cryptocurrency exchanges.
This was prompted by reports of tax evasion by several major exchanges.
And China’s plan to severely restrict bitcoin mining comes amid speculation that the People’s Bank of China is growing increasingly concerned about Bitcoin’s implications for financial stability in the country.
Stuart Roux, an associate attorney at VDMA Attorneys, said the central bank issued a position paper on virtual currencies whereby it declared that virtual currency had “no legal status or regulatory framework” and was therefore unregulated in South Africa.
“The Reserve Bank has furthermore warned that as Bitcoin has no legal status or a regulatory framework, it thus poses a number of risks for those that would choose to transact with it,” Roux said.