Juliana White, Director of Capital Markets at the Non-Bank Financial Institutions Regulatory Authority NBFIRA), says the objective of the Act and its supporting Regulations is to regulate new and developing virtual assets businesses.
The law makes provisions for managing, mitigating and preventing money laundering and financing of terrorism and proliferation risks associated with virtual assets and new emerging business practices and technologies, as well as for NBFIRA’s functions and powers. According to White, the Act grants the regulatory authority the ability to license virtual asset service providers and issuers of initial token offerings, regulates, monitors and supervises issuance of virtual assets and persons conducting virtual asset business in Botswana, and develops rules, guidance and codes of practice in connection with the conduct of virtual asset business and initial token offerings.
Further, she says, it will advise the minister on all matters relating to virtual asset business, promote investor education and other conditions that facilitate innovation and development of virtual asset businesses within Botswana, publish notices, guidelines, bulletins and policies regarding the interpretation, application and its enforcement in collaboration with the Bank of Botswana. It will ensure the financial soundness and stability of the financial system in Botswana in respect of virtual assets and give directions to, and take enforcement action against, a licence holder. The regulations will also do such things as may be necessary for purposes of this Act.
White notes that this law will also help by ensuring that Virtual Assets Service Providers (VASPs) are registered regardless of their physical location. Under it, only legitimate providers will be allowed to transact with Batswana, thereby protecting Batswana against illicit service providers. The Act applies to service providers that either target the Botswana market or are incorporated in Botswana and offer virtual assets inside or outside Botswana.
“The Act requires a license holder to have appropriate measures to identify, deter and prevent market abuse, financial crime and money laundering on and through its distributed ledger technology platform and report to the Regulatory Authority any market abuse or suspicious transaction,” she says. To grant a licence, the NBFIRA will first ensure that the applicant satisfies both the prudential and market conduct requirements by submitting a business plan to demonstrate business viability, technological capabilities and other operational capabilities, including fit and proper, of its controllers and due diligence of its customers to the satisfaction of the Financial Intelligence Act (FIA) in anti-money laundering (AML) and terrorism financing (TF).
“The law emphasises on fit and proper as well as solvency,” says White. “Regarding the ‘fit and proper’ requirements, it is imperative for applicants to demonstrate that key persons understand the business of virtual assets, the key risks associated with virtual assets as well as an applicant’s capability and capacity to carry out a virtual asset business. The Authority, when vetting key controllers for fit and proper, must take cognizance of the requirements under FIA.”
White states that VASPs will be regulated like any other non-bank financial institution and be subjected to the provisions of the Financial Intelligence Act to ensure that they have adequate Anti-Money Laundering and Combating the Financing of Terrorism and Proliferation (AML/CFT&P) policies and procedures for purposes of ensuring that they are not used for money laundering activities.
She is excited by the fact that the Act will help by ensuring that VASPs are registered regardless of their physical location and that therefore only legitimate providers will be allowed to transact with Batswana, thereby protecting Batswana against illicit service providers. Further, the Act requires a licence holder to have appropriate measures to identify, deter and prevent market abuse, financial crime and money laundering on and through its distributed ledger technology platform and report to the Regulatory Authority any market abuse or suspicious transaction.
Asked how capacitated the Authority is to be able to regulate virtual assets service providers, this being fairly a new responsibility for NBFIRA, White responded that the Authority is aligned to international standards and uses the risk-based supervisory approach in supervising all industries under its purview. This, she says, in essence requires the allocation of resources primarily towards entities that pose systemic risk to the NBFI sector. The regulation and supervision of virtual asset business will, therefore, not be any different.
She emphasises that capacity building in the area of virtual asset businesses is an ongoing exercise. The Authority therefore continues to engage and leverage available resources to strengthen its capacity in this regard. NBFIRA, through its institutional partnership and membership in several regional and standard setting bodies, is able to tap into the necessary resources for any capacity building it requires, taking into consideration market development.
While virtual assets are not explicitly stated in the NBFIRA Act, White says it is important to note that the Authority’s mandate is to create a regulatory environment that safeguards and contributes to the stability of the local financial system. “The Authority’s mandate includes combatting financial crime and developing regulatory frameworks that are aligned with international best practice, hence the need to include VA in light of global developments around the crypto space,” she explains. “The virtual assets law is thus aligned to NBFIRA’s mandate in that the Act seeks to ensure consumer protection as well as combat cybercrime, which are key foundations of financial stability.”
The regulation of VASPs, therefore, is the basis for holding industry players accountable, preventing abusive business practices, protecting consumers from being exposed to undue risk; providing recourse for consumers; ensuring disclosure and transparency of information and equally important, aligning to international standards and best practice. White says it is for all the reasons stated above that it is imperative for the Authority to license VASPs, and in so doing, build and sustain the confidence of local and international stakeholders in the integrity of the industries within the local Non-Bank Financial Institutions (NBFI) sector.
