According to the latest report from the South African Central Bank and the Intergovernmental Fintech Working Group, policymakers, legislators, and regulators need to interact more with the fintech industry before distributed-ledger technology can be integrated into the country’s financial systems. A decentralized digital record of transactions and contracts is known as a distributed ledger. With payment system reforms underway in South Africa, it’s an opportune time to consider how to treat distributed ledger-based platforms and the use of tokenization in financial markets. However, the Reserve Bank and the working group said in a statement [which Wednesday]Wednesday that efforts should be made to ensure rules are technology-neutral, principle-based, and borne out of collaboration.
The two firms have concluded a cooperative proof-of-concept project that looked at the policy and regulatory consequences of distributed-ledger-driven financial market innovation.
“The insights gained through practical exploration should lead to greater regulatory clarity both for innovators and for regulators and should be in the broader interest of ensuring a level playing field for all market participants,” Governor Lesetja Kganyago said in an online speech.
Regulators should move with caution when considering developments before amending rules and should be “fully appreciative” that regulated entities need clarity to commit to distributed-ledger markets, he added.
The Central Bank and working group used distributed-ledger technology and tokenized money to issue, clear, and settle debentures as part of Project Khoka 2 to inform policy and regulatory assessments. The Johannesburg Stock Exchange and South Africa’s major four banks — Absa Group Ltd., FirstRand Bank Ltd., Nedbank Group Ltd., and Standard Bank Group Ltd. — formed the working group. New capabilities across all key players are required to operate a distributed-ledger technology-based financial system, and new platforms must be integrated with legacy systems, according to the Central Bank and working group. The expenses of such a change, which should be borne by all market participants, must be balanced against the possible advantages, new standards, best practices, and a support ecosystem will be established.
“A transition to a DLT-based system requires careful planning and execution and may involve running a DLT-based system in parallel to the existing system for a while, perhaps indefinitely,” they said.