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Mercury Foreign Exchange, VALR, and Ripple have announced that their initiative to test the regulatory treatment of cross-border payments using the Ripple cryptocurrency, XRP, has been approved for South Africa’s inaugural regulatory sandbox.
The regulatory sandbox is an initiative of the Intergovernmental Fintech Working Group (IFWG), an organisation that includes South Africa’s major financial regulators and government agencies.
National Treasury, the South African Reserve Bank, the South African Revenue Service, the National Credit Regulator, the Financial Sector Conduct Authority, the Financial Intelligence Centre, and the Competition Commission are all part of the IFWG.
Ripple is a blockchain-based payment protocol and digital asset (XRP) that is supported on cryptocurrency exchanges around the world.
VALR is a cryptocurrency exchange focused on the South African market that offers rand trading pairs for bitcoin, ether, and ripple. It also offers the ability to buy and sell over 50 cryptocurrencies through a partnership with cryptocurrency exchange Bittrex.
The Ripple cryptocurrency is also supported on VALR’s competitors in South Africa such as Luno and AltCoinTrader.
Ripple is currently facing legal action brought by the Securities and Exchange Commission in the United States for allegedly conducing an unregistered securities offering when it launched the XRP digital asset.
Regulatory Sandbox
The IFWG has stated that the purpose of its regulatory sandbox is to provide a space for safe experimentation.
“Market innovators must apply to the Regulatory Sandbox,” the IFGW stated.
“Accepted participants test their product or service within parameters established by the IFWG and are expected to report on testing progress at regular intervals.”
According to the IFWG, lessons learnt from testing will help regulators determine if and how policies and regulations must change to promote responsible innovation in the market.
The IFWG said it received 52 applications for the regulatory sandbox — 34 were related to payments, 7 savings and deposits, 5 lending, 3 investments, and the remaining 3 identified as “other”.
Currently only six projects have been approved for the sandbox. Of those, four are related to cryptocurrency and blockchain innovations and of those, two use the Ripple protocol.
Investec testing Digital Asset Vault
In addition to the experiment from Mercury and VALR, another company called Xago Technologies is also testing cross-border payments between the United Kingdom and South Africa using the Ripple network.
Investec is testing a safe custody service for crypto assets which it calls the Digital Asset Vault.
“The objective of testing the Digital Asset Vault in the Sandbox is primarily to test Investec’s regulatory compliance, regulatory reporting processes, and related risk management frameworks in collaboration with the IFWG,” Invested stated.
The fourth blockchain project in the regulatory sandbox is Centbee, a Bitcoin-based wallet provider in South Africa.
Centbee is testing the regulatory treatment for low-value cross-border payments between South Africa and Ghana using Bitcoin and Bitcoin Satoshi Vision.
The table below summarises the projects that are currently approved for the IFWG Regulatory Sandbox.
| Experimenter | Experimenter’s core business | Description of the sandbox experiment |
|---|---|---|
| The People’s Fund | Crowd-investing platform that facilitates raising capital for small and medium-sized Enterprises (SMEs) with consumers willing to invest. The investments are used to fund SMEs’ purchase orders, products or assets. | The sandbox seeks to clarify the treatment and appropriate framework for the intermediation of crowd-investing platforms. |
| The Standard Bank of South Africa Limited | Financial institution that offers banking and financial services to individuals, businesses, institutions and corporations in Africa and abroad. | Reporting of cross-border foreign exchange transactions submitted to the Financial Surveillance Department of the South African Reserve Bank using a blockchain platform, and verifying that the reporting is timely and in compliance with all relevant reporting rules as prescribed in the Business and Technical Specifications. The reporting tested will happen in parallel to existing reporting process and clients would not be impacted. |
| Investec Bank Limited (Investec) | Specialist banking, and wealth and investment services to individuals, businesses, and intermediaries. | Investec is testing a safe custody service for crypto assets through — a Digital Asset Vault. This is a secure mechanism for Investec clients to store and transfer crypto assets, reducing reliance on crypto asset exchanges or complex cold storage, i.e. hardware wallets. The objective is to test Investec’s regulatory compliance, regulatory reporting processes, and related risk management frameworks in collaboration with the IFWG. |
| Xago Technologies (Xago) | Cross-border remittances | Testing the regulatory treatment of crypto assets (specifically Ripple (XRP)) in terms of the South African Exchange Control Regulations 1961, promulgated in terms of section 9 of the Currency and Exchanges Act, 1933 (Act No. 9 of 1933), used for effecting cross-border transactions between South Africa and the United Kingdom, and vice versa, subject to certain limits prescribed by the relevant authorities, and reporting on such transactions to the relevant authorities. |
| Mercury FX (Mercury) | International payments | Mercury is testing the regulatory treatment, and associated regulatory reporting implications and obligations, of crypto assets (specifically XRP) being used for effecting low-value cross-border remittances between South Africa and the United Kingdom and vice versa, subject to certain limits prescribed by the relevant authorities. Testing will in the main be done in terms of the South African Exchange Control Regulations 1961, promulgated in terms of section 9 of the Currency and Exchanges Act, 1933 (Act No. 9 of 1933). |
| Centbee | Digital payments | Centbee is testing the regulatory treatment of crypto assets (specifically Bitcoin (BTC) and Bitcoin Satoshi Vision (BSV)) for low-value cross-border remittances between South Africa and Ghana. |
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