Last week the US Senate voted 49 to 50 to block the Digital Asset Market Clarity Act (the Clarity Act) from advancing further, shy of the 60 votes required for it to pass.
The bill had already cleared the House of Representatives and two Senate committees this year with bipartisan support. It was meant to give the US crypto industry what South Africa’s regulators have not yet managed: a single statutory framework, passed by an elected legislature, that settles which regulator does what.
The bill’s core intention was to split the oversight of digital assets between the Securities & Exchange Commission and the Commodity Futures Trading Commission, defining which tokens count as securities and which count as commodities. It is a question that has driven years of enforcement litigation in US courts. The bill would have set custody, disclosure and anti-money-laundering rules for exchanges and barred the Federal Reserve from issuing a retail central bank digital currency.
In the end, the bill could not overcome the final hurdle over three unresolved provisions: an ethics clause relating to officials’ crypto holdings; the liability that developers of decentralised finance protocols should face in the event that their code is misused by third parties; and a ban on yield-bearing stablecoins.
The future of the bill, or a similar one, is now up in the air, leaving the US crypto exchanges and stablecoin issuers operating under the patchwork of enforcement actions the bill was written to, well, clarify.
Even though the process can be slow and frustrating, the attempt to clarify the regulations regarding digital assets through the normal legislative process is commendable.
South Africa has taken the opposite route. There has been no equivalent bill before parliament; regulation has arrived through declaration and litigation instead: the Financial Sector Conduct Authority declared crypto assets “financial products” under the FAIS Act in October 2022, licensing exchanges without a dedicated act of parliament behind it. When the Gauteng High Court ruled in May last year, in the case of Standard Bank vs the South African Reserve Bank, that crypto assets fall outside the 1961 Exchange Control Regulations, the National Treasury responded not with legislation but with draft regulations, published in April, reclassifying crypto as “capital” by administrative fiat.
Opposing voices
In September recently a broad coalition of more than 200 organisations, including Luno, together with 5,500 individuals (and counting), formed the Crypto Asset Taskforce for Advancing Sound, Technology-Neutral Regulation for Opportunity, Prosperity and a Healthy Economy (Catastrophe). Its purpose is to oppose the newly published Draft Crypto Assets Manual, which proposes to lay down new cross-border crypto rules. This manual is set to include the banning of South African companies from using regulated crypto rails for lawful cross-border payments, as well as a one-way rule preventing crypto that has been moved to self-custody from returning to a licensed platform. The rules are out for public comment, but the review process happens outside parliament’s public scrutiny.
Say what you will about the Clarity Act itself, its aim was to give a clear regulatory framework, designed by democratically elected officials and tested through the robust scrutiny of the House of Representatives and the Senate and its committees.
Clarity is needed in South Africa. Parliament should give it.
De Wit is country manager for Luno South Africa
