According to the Bank of Botswana, the local cryptocurrency sector poses minimal risks to financial stability.
That said, the increasing interconnectedness of the crypto market with the rest of the financial system presents potential future systemic risks.
“Domestically, risks emanating from crypto assets are minimal but ongoing misconduct in the segment presents regulatory concerns.
Regulators therefore need to develop effective oversight frameworks for the sector,” the bank said in a report.
While cryptocurrency does not pose a threat to financial stability, the Bank of Botswana identified the use of digital payment instruments for money laundering and terrorist financing as one of the top five national security risks stemming from the financial sector.
“The evolution of digital platforms and digital payment instruments that promote anonymity of transactions present an opportunity for money laundering in the financial sector.”
The bank, which in 2021 urged due dilligence when dealing with cryptocurrencies, highlighted that the complexity of financial technology developments enables illicit funds to be transferred globally with minimal detection risk.
@KalKassa here’s the link, there’s a link on the page that takes you the document The Central Bank of Botswana Addresses the Legality of Crypto Assets in Botswana https://t.co/MPZdSOHMye via @BitcoinKE
— Loresho_Hodler ⚡️ (@rkirubi) November 18, 2021
To address these risks, it urged regulators to ensure that virtual asset service providers, such as crypto exchanges, adhere to Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations which is the biggest risk to financial stability.
Additionally, the bank emphasized the importance of market surveillance and regular collaboration with law enforcement to identify and prevent illegal activities.
In early 2022, Botswana lawmakers passed a bill to regulate the trading of cryptocurrencies and digital tokens.
BREAKING
Botswana🇧🇼 Passes a Virtual Assets Bill to Regulate Trading of Cryptocurrencieshttps://t.co/MujR12HcgN
— BitKE (@BitcoinKE) February 2, 2022
In its statement at that time, the Bank of Botswana made the following observations:
- There is no specific legal or regulatory framework pertaining to crypto assets such as bitcoin
- It is advisable and prudent that those intending to participate in crypto assets activity to undertake due dligence
- There is general concern that the undelying activity may relate to pyramid scheme and scams
- The reference to crypto assets as currencies is a misnomer because they do not exhibit key fundamentals of money
- There is no recourse to the bank for redress pertaining to fraud, misconduct or financial loss related to crypto assets
Later the same year [2022], the Non-Bank Financial Institution Regulatory Authority (NBFIRA), mandated with regulating and enforcing compliance within the non-bank financial institutions sector, issued the first VASP license to YellowCard, an Africa-focussed crypto on and off-ramp platform.
YellowCard Granted a Virtual Asset Service Provider (VASP) License in Botswana🇧🇼 – The First in Africa
The license makes YellowCard the first company in Africa to get a VASP license!https://t.co/h75wVYTvBU @yellowcard_app
— BitKE (@BitcoinKE) October 21, 2022
Staying with technology, the bank notes that AI-driven algorithmic trading strategies could exacerbate market instability due to their programming to de-risk or shut down during periods of high volatility, potentially leading to a sudden evaporation of liquidity.
Another area of concern is the opacity and complexity of AI models, which could undermine supervisory efforts, particularly in the less regulated non-bank financial sector, the bank said.
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