Unit 6: Banking Law - UFS PDF

UNIT 6: BANKING LAW T: +27 51 401 9111 | E: [email protected] | www.ufs.ac.za INTRODUCTION South Africa has a well-established banking regulatory framework. The banking capital requirements in the Banks Act, 1990 (Banks Act). The subordinate legislation, together with the exchange...

UNIT 6: BANKING LAW T: +27 51 401 9111 | E: [email protected] | www.ufs.ac.za INTRODUCTION South Africa has a well-established banking regulatory framework. The banking capital requirements in the Banks Act, 1990 (Banks Act). The subordinate legislation, together with the exchange control regulation enforced in South Africa by the national treasury, meant that South African banks were largely shielded from the 2008 global financial crises. The Financial Sector Regulation Act, 2017 (FSR Act) was signed into law on 21 August 2017, giving effect to the implementation of the "Twin Peaks" model of regulation in the South African financial sector. INTRODUCTION The FSR Act established the Prudential Authority (PA) of the South African Reserve Bank (SARB), which is responsible for supervising the operation of banks in South Africa and ensuring compliance by banks with the Banks Act. The Financial Sector Laws Amendment Act, 2021 amends the FSR Act to, among other things, establish a "Resolution Framework" for the resolution of designated institutions to ensure that the impact or potential impact of a failure of a designated institution on financial stability is managed appropriately and establish a deposit insurance scheme. INTRODUCTION The date for effectiveness of the Resolution Framework and deposit insurance schemes have not yet been determined by the Minister of Finance (MoF). The SARB as the central bank of South Africa is primarily responsible for overseeing banks. The PA, as a juristic person operating within the administration of the SARB, supervises the domestic activities of all banks, representative offices and branches of foreign banks, and the foreign activities of South African banks. A key objective of the PA is to promote the soundness of the domestic banking system, through effective and efficient application of international regulatory and supervisory standards and best practice. INTRODUCTION To keep informed of international regulatory and supervisory developments, the PA participates in, and contributes to, various international forums. Directors of banks must have a basic knowledge and understanding of the conduct of the business of a bank and of the laws and customs that govern the activities of such institutions (regulation 40(1), Banks Regulations) and perform their duties with diligence, care and competence (regulation 40(2), Banks Regulations). It is their duty to ensure that risks are managed prudently, particularly since banks administer money loaned to them by the public (regulation 40(3), Banks Regulations). INTRODUCTION The South African Reserve Bank Act, 1989 (SARB Act), together with the Banks Act, the Mutual Banks Act, 1993 and the FSR Act, assigns responsibility for the registration and supervision of banks to the SARB. These Acts provide that the powers for bank registration and supervision are assigned to the PA.\ In terms of the Banks Act, section 12, none can operate or carry out the services of the bank without a licence.  BANK-CUSTOMER RELATIONSHIP The BC relationship is a multi-faceted relationship that is founded in various contracts. In Standard Bank of SA Ltd v Absa Bank Ltd,7the court noted that amongst other forms of contracts emerges between these parties, the contract of mandate between the bank and its customer underpinned this relationship. his suggests that the common law contract principles apply in the BC relationship as well as other special contractual rules. In the English classic case of Foley v Hill,8Lord Brougham pointed out that the BC relationship can be described as a "debtor-creditor relationship". This was because as soon as the client deposits his\her money into the bank account, the bank immediately becomes a debtor to the client. It can be said that upon deposit by the client into his\her bank account, the money ceases to be the client's and becomes the bank's financial asset, which the bank is bound to return to its client upon demand.  BANK-CUSTOMER RELATIONSHIP Accordingly, the bank is a debtor to the client to the extent that the client's bank account shows a positive balance. To put it differently, the bank is only a debtor of the client subject to the condition that the client has funds in his\her bank account. Logically, the bank cannot be a debtor if the client has a negative balance in his account. In such an instance, the client becomes a debtor and the bank is the creditor. The bank has a duty to pay the client's orders according to the client's mandate provided there are sufficient funds available in the account. To act only upon the valid instructions of its client and not upon any fraudulent instructions.  BANK-CUSTOMER RELATIONSHIP To provide the client with bank statements. To protect the client's confidentiality, subject to certain exceptions. Fiduciary duty in limited circumstances. To give a reasonable notice before closing the client's bank account if it has a credit balance. The bank's client also has corresponding duties toward the bank. The client has a duty to exercise care when giving bank instructions. Disclose any forgeries.  METHODS OF PAYMENT: Credit card payments: Regulated by the National Credit Act 34 of 2005, due to the fact that a credit card is a form of revolving credit. Credit card scheme gives rise to three different contractual relationships; 1. Bank & Card holder: Contract concluded upon application for credit. Card holder will use credit card to buy goods & services from merchants & bank will pay, holder to refund bank + charges. 2. Bank & Supplier/Merchant: Bank to pay supplier for transactions entered into with valid card holder. 3. Supplier & Card holder: Cardholder’s liability to supplier is secondary & arises only in the event that the bank does not pay the supplier. Electronic Funds Transfer (EFT): Regulated by The Electronic Communications and Transactions Act 25 of 2002 due to its electronic nature. Credit transfer – customer instructs bank to move amount from the customer’s account to that of the payee (groceries @Woolies using debit card). Debit transfer – customer authorizes payee to instruct the bank to transfer funds from customer’s account to that of payee (payments of regular commitments).  LIABILITY OF A BANK FOR UNAUTHORISED PAYMENTS In Diners Club SA (Pty) Ltd v Singh & Another(2004 (3) SA 630 (D)), the relationship between a bank and its client who had used a credit card issued by the bank came under the spotlight. In a lengthy judgment, Levinsohn J made the same instructive comments regarding the relationship between the issuer of a credit card, on the one hand, and the holder of the card, on the other hand. This is the first ever reported South African case in which the legal relationship between a credit card issuer and the holder of the card came up for decision. A credit card has been described as an instrument that 'offers a revolving credit whereby the card issuer allows the cardholder to use the card during a monthly accounting period to pay for goods and services or to draw cash, up to a prescribed limit, interest being payable on the amount outstanding at the end of the monthly accounting period  LIABILITY OF A BANK FOR UNAUTHORISED PAYMENTS A credit card has four main functions. Payment is its primary function. Credit cards may either be used as a method of payment where the cardholder and the merchant are in each other's presence, or they may be used to pay for goods bought over the Internet or telephone where the parties are not in each others' presence. Secondly, a credit card also provides credit to the cardholder since he or she only pays the card issuer for the purchases made with the card at a later stage. Thirdly, some credit cards entitle the cardholder to cash personal cheques by showing their cards at any of the banks used as agencies. Finally, credit cards issued by banks may be used by the cardholder to effect cash withdrawals at any branch of the issuer and at automatic teller machines('ATM') which are linked to the specific network to which the issuer of the cards belong.  LIABILITY OF A BANK FOR UNAUTHORISED PAYMENTS FACTS In 1997 the plaintiff, Diners Club, issued a Diners Club credit card to the two defendants, Singh and his wife. Over the week-end of 4 and 5 March 2000, 190 successful ATM cash withdrawals were made with Singh's credit card in London. The proceeds of these withdrawals amounted to some£54 000, roughly equivalent to R500 000 at that time. Singh's case was that he had not been in London that weekend, that his card was at all times in his possession, and that his Personal Identification Number('PIN') had not been given to anyone else. Diners Club, in turn, relied on a number of contractual clauses which formed part of the contract in terms of which they had issued the credit card to Singh  LIABILITY OF A BANK FOR UNAUTHORISED PAYMENTS The most important and relevant of these was clause 7.3 which provided that the cardholder would be liable irrespective of who used his or her PIN. The agreement further provided that 'cards are issued subject to the prevailing terms and conditions accompanying the card, of which the Cardholder shall be deemed to be aware of and to have accepted upon use of the card. The Decision in Diners Club v Singh Three main points for decision arose in the Diners Club case. The first two points concerned two defenses raised by Singh against Diners Club's claim. The third concerned the constitutionality of the Electronic Communications Transactions Act 25 of 2002 ('the ACT Act').  LIABILITY OF A BANK FOR UNAUTHORISED PAYMENTS Singh's first defense was an alibi; he argued that he was not in London during the fateful week-end in March 2000. Further, so he contended, the withdrawals were made with the co- operation of an 'insider' either in Standard Bank South Africa or in the Diners Club organisation. Singh's second defence turned on the alleged illegality of clause 7.3 of the agreement between him and Diners Club. He argued that that clause was contra bonos mores and therefore invalid. Thirdly, Singh argued that the provisions of the ECT Act had infringed on his constitutional right to a fair trial.  LIABILITY OF A BANK FOR UNAUTHORISED PAYMENTS In the evidence before it, the Court was satisfied that Singh conspired with the members of a syndicate to provide them with his card and PIN to enable them to withdraw the money in London. Singh's first defence and the Court's decision on it do not merit any further comment here. On legality of the contract, the court acknowledged the principle of South African law that contracts seriously entered into should be enforced. However, it is equally trite that in no jurisdiction will all agreements be enforced without exception if such a contract is against public policy. The potential unfairness of a contract may constitute a ground upon which a court may find that one or more of its terms are so unfair that the contract is contrary to public policy and therefore illegal  LIABILITY OF A BANK FOR UNAUTHORISED PAYMENTS Unfairness in contract may also be dealt with in a variety of other ways, for instance, in terms of the manner in which consensus is acquired, the legal impossibility of performance, the disturbance of the balance between performance and counter-performance, or a remedy such as the exceptio doli generalis. The court held that the contract was fair, although it placed strenuous conditions on Mr Sighn. He had exercised his freedom to contract. The gist of clause 7.3 entailed that the cardholder, Singh, was liable forall purchases or cash withdrawals made with his credit card irrespective of who used the card and the PIN.  LIABILITY OF A BANK FOR UNAUTHORISED PAYMENTS In considering the fairness of the clause, the Court held that it is trite that a credit card may be used throughout the world. The Court reasoned that while it may be said that the clause was one- sided and favored the issuer of the card, Diners Club was entitled to protect itself by placing the risk of wrongful use on its customer. Importantly, the Court pointed out that Singh had accepted his credit card knowing that he would be bound by the relevant contractual terms and conditions. Singh was further under no obligation to do so, nor was he obliged to apply for a PIN. The Court reasoned further that at the time when Singh accepted the credit card from Diners Club, he ought to have known, or alternatively have apprised himself, of the terms applicable to the use of the PIN  LIABILITY OF A BANK FOR UNAUTHORISED USE OF MONEY DEPOSITED INCORRECT IN BANK ACCOUNT First National Bank of Southern Africa v Perry, Nissan South Africa v Marnitz NO and Absa Bank v Lombard Insurance, 2005 (1, ) SA 441the court had to deal with unauthorised use of money incorrectely deposited in a bank account. An amount of R12,767,468.22 was paid into the wrong bank account due a clerical error by the bank, making this dream come true for Maple Freight CC. Nissan South Africa (Pty) Ltd (“Nissan”) instructed its bank, FNB, to make certain payments to its creditors. One of the creditors that had to be paid an amount of R12,767,468.22, was TSW Manufacturing. However, due to a clerical error, the wrong banking details were furnished, resulting in the payment being made to a third party’s account namely, Maple.  LIABILITY OF A BANK FOR UNAUTHORISED USE OF MONEY DEPOSITED INCORRECT IN BANK ACCOUNT At no point in time was any amount due to Maple by Nissan. Once Maple realised that the money was deposited to its account, it transferred R12,700,000 from his Standard Bank account to its FNB receipts account and soon thereafter transferred the money its payments account, where the funds were being utilising in conducting the day-to-day business of Maple. Twenty days later, TSW made inquiries about the payment, at which point Nissan became aware of the erroneous payment and demanded that the funds be returned. Maple indicated that it was indicated that it was prepared to comply with the demand subject to it retaining the interest earned thereon and a lavish ‘administration fee’ of 4% of the amount concerned.  LIABILITY OF A BANK FOR UNAUTHORISED USE OF MONEY DEPOSITED INCORRECT IN BANK ACCOUNT Nissan obtained a court order to freeze Maple’s account, which according to the sole member of Maple, Stanley, placed considerable strain on Maple, resulting in the necessity according to Stanley, to voluntarily liquidate Maple. Twenty-three days after the funds were erroneously transferred, the credit balance in Maple’s account was R10 558 818,05. Stanley and Maple’s liquidators contended that this amount formed part of Maple’s insolvent estate and is therefore subject to a concursus creditorum. Only R9,750,000 could be traced back to the amount transferred from Nissan to Maple. Nissan therefore applied to Court for an order.  LIABILITY OF A BANK FOR UNAUTHORISED USE OF MONEY DEPOSITED INCORRECT IN BANK ACCOUNT Declaring that the amount of R9 750 000 and any interest that accrued thereon from 20 February 2003 did not form part of the insolvent estate of Maple Freight CC (in liquidation); and (b) directing the first and second respondents to pay the amount to the appellant, alternatively, FNB. The SCA upheld the appeal and held that the order of the Court a quo had to be replaced with an order declaring that the funds did not form part of the insolvent estate of Maple. The Supreme Court of Appeal held that a bank which had unconditionally credited its customer’s account with an amount received was not liable to pay the amount to the customer on demand where the customer came by such money by way of fraud or theft. If stolen money were paid into a bank account to the credit of the thief, the thief had as little entitlement to the credit as he had to the money itself.  LIABILITY OF A BANK FOR UNAUTHORISED USE OF MONEY DEPOSITED INCORRECT IN BANK ACCOUNT It further held that payment was a bilateral juristic act which required there to be a meeting of two minds, there was no meeting of the minds in this scenario, therefore Maple had not become entitled to the funds erroneously credited to its account. Counsel for Nissan submitted that because there was no intention on its part to pay Maple, Maple had no entitlement as against Standard Bank to the funds transferred to Standard Bank. They contended, furthermore, that since Maple had no entitlement to the funds as against Standard Bank, it could not acquire a greater title as against FNB by transferring the funds to another account with that bank. The Supreme Court of Appeal held that a bank which had unconditionally credited its customer’s account with an amount received was not liable to pay the amount to the customer on demand where the customer came by such money by way of fraud or theft. If stolen money were paid into a bank account to the credit of the thief, the thief had as little entitlement to the credit as he had to the money itself.  CLOSURE OF A BANK ACCOUNT AND ITS LEGAL EFFECT The BC relationship may be terminated in many ways. These include but are not limited to notice by the bank, mental disorder of the client, insolvency of the client or by mutual agreement. It is noteworthy that in practice, it is nearly always the one party or the other wishes to end the relationship, as such, the BC relationship is terminated unilaterally. This raised the question whether the bank is obliged to provide a reasonable notice to its client before it unilaterally closes the client’s bank account. In Breedenkamp v Standard Bank of South Africa, the United States government listed the applicant (Breedenkamp), Breco (the company) and other certain entities as specially designated nationals (“SDN”).  CLOSURE OF A BANK ACCOUNT AND ITS LEGAL EFFECT This came because of allegations against Breedenkamp that he was involved in various illicit activities such as tobacco trading, arms trafficking, oil distribution, diamond extraction and of being a confidant and financial backer of Zimbabwe’s President Robert Mugabe. Subsequent to this SDN listing, the US enforcement authorities imposed sanctions on the applicant, Breco and other entities.35 In terms of US law, US nationals, including juristic persons, are strictly precluded from dealing with SDNs. The Standard Bank of South Africa (“Standard Bank SA”) became aware of these facts and upon issuing thirty (30) days’ notice of termination of th banking services with Breedenkamp, decided to cease its contract with Breedenkamp, Breco and other entities. The bank derived its powers to unilaterally terminate the contract from the “general terms and conditions for all accounts”,  CLOSURE OF A BANK ACCOUNT AND ITS LEGAL EFFECT entered by both parties and in terms of the Code of Banking Practice. In terms of these general terms and conditions, the bank could terminate any account, for any reason, by providing a written notice to such effect. In addition, the bank could at any time amend the terms and conditions of the BC contract by giving a written notice to the customer. The code of banking practice also empowered the bank to close its customer’s bank account if it had reasons to believe that the account was being used for any illegal purposes. Therefore, Standard Bank SA relied amongst other reasons on these provisions to cancel its BC relationship after it became aware of the applicant being listed as the SDN by the US government  CLOSURE OF A BANK ACCOUNT AND ITS LEGAL EFFECT Three initial reasons were advanced by the bank for the closure of the applicant’s accounts. First, that the US government as a specially designated person listed the applicant. Second, that these allegations might impaired Standard Bank SA’s reputation. Third, certain business risks could arise should the bank continued offering banking services to Breedenkamp and SDN. In response to the intended closure of the bank accounts, the applicant approached the court for an interim interdict to restrain Standard Bank SA from cancelling the contract between the parties pending the finalisation of the matter. The applicant contended that the closure had drastic effects on his business  CLOSURE OF A BANK ACCOUNT AND ITS LEGAL EFFECT It was accepted that Standard Bank SA termination of the contract did not directly violate the applicant’s right to freedom of contract, dignity or trade. The court accepted that banks do impose standard form contracts, but the evidence before the court did not prove that this constituted an aggravating factor in the present matter. It seems that the court was prepared to accept that the parties were not on equal bargaining position provided evidence could support such conclusion. The applicant had failed to establish that other banks could not take him on as a client because of the unilateral cancellation by Standard Bank SA. The court further held that fairness principle also entailed the bank’s right to choose which person it wanted to contract with. Moreover, the bank had a duty to comply with and uphold banking regulations. As such, the court ruled that the process was procedurally fair. Substantively there was a proper rationale for the decision to terminate  Defining cryptocurrency  Cryptocurrencies are a form of denationalised virtual currency and a representation of value endowed with cryptographic features protecting them against counterfeiting or double-spend.  From the global regulators’ perspective, the fascination and interest in cryptocurrency is largely predicated on the premise that cryptocurrencies present prospects for creating a unique international financial system  Defining cryptocurrency  Such a financial system wrestles financial control from conventional third parties, such as banks and governments, while avoiding the issue of double- spending prevalent in electronic transactions.  Cryptocurrencies are based on a decentralised distributed ledger system which operates without much involvement of traditional third parties or middlemen, making the system exceptional from the extant traditional banking system Defining cryptocurreny  They are a unique form of abstract electronic currencies exchangeable between peers.  Examples of such cryptocurrencies include: (a) Bitcoin (BTC); (b) Litecoin (LTC); (c) Ethereum (ETH); (d) Bitcoin Cash (BCH); (e) Ethereum Classic (ETC); (f) Zcash (ZEC); (g) Stellar Lumen (XLM); and (h) the Bitcoin Satoshi's Vision (BSV) Defining cryptocurreny  These cryptocurrencies constitute a self- enforcing representation of computer based information and numbers. They are a form of immaterial property which gives the owners exclusive rights of use over the abstract instrument.  Cryptocurrencies function as an instrument of payment not only capable of replacing conventional cash payments and bank transfers, but also electronic cash payments. Defining cryptocurreny  Legally speaking, cryptocurrencies create cambial obligations as well as property rights since they are both an instrument of payment and a commodity.  Cryptocurrencies are created through a ‘mining’ process and are not backed by gold or other common assets of intrinsic value; their value emanates from trust, acceptance and a degree of speculative interest generated from their uniqueness. Defining cryptocurreny  The mining of cryptocurrencies refers to the process of creating new cryptocurrencies by solving cryptographic equations using highly charged super-ended computers.  The production process consists of the ‘verification of data blocks and placing the transaction records onto a public record (ledger) system called blockchain.  Defining cryptocurreny The ledger is secured by complex encryption techniques. In order to create new currencies on the ledger, the system demands solving complicated mathematical puzzles that assist in verifying virtual currency transactions and then updating them on the blockchain ledger system.  The miners are rewarded by retaining ownership of the cryptocurrencies. This process brings new currencies into circulation. Defining cryptocurreny  Block chain technology and cryptocurrencies mining require high energy consumption, and generate environmental waste when the computer hardware becomes obsolete.  Cryptocurrencies are a form of disruptive virtual currency endowed with the potential to fundamentally change the payment system in South Africa, Zimbabwe and Botswana by providing an alternative that is faster and safer.  Cryptocurrency and financial inclusion  Before discussing whether and how cryptocurrencies facilitate financial inclusion, an ancillary, yet necessary inquiry which should be addressed relates to the exactly meaning of the term ‘financial inclusion’.  The concept of financial inclusion is an anti- thesis to the notion of financial exclusion  Cryptocurrency and financial inclusion  It is premised on the perspective that people, especially those who are impoverished or living on low income, should have access to a plethora of financial services, such as banking, credit, savings, insurance and money transfers, so that they can manage their money effectively, which would enable them to meet their long- and short-term economic needs  Cryptocurrency and financial inclusion  Many people in South Africa, Botswana and Zimbabwe have access to mobile phones which gives them the capacity to engage in cryptocurrency transactions by plugging in to an internet outlet or sending and receiving SMS through their mobile phones.  Although internet coverage is still low in rural areas, peri-urban and urban people have good connectivity.  Cryptocurrency and financial inclusion  Cryptocurrencies, such as Bitcoin, only require a mobile phone for people to exchange the currency, thereby minimising the need for banks as people will eventually become their own banks.  The capacity for cryptocurrencies to replace orthodox forms of payment remains the greatest promise of these currencies.  Cryptocurrency and financial inclusion  The transactional costs incurred for using the conventional or orthodox payment systems remain very high in South Africa, Botswana and Zimbabwe.  Cryptocurrencies provide a unique alternative by removing some traditional intermediaries, substantially decreasing concomitant transaction fees.  Cryptocurrency and financial inclusion  The majority of people in South Africa, Botswana and Zimbabwe do not have a digital identity, which substantially limits their ability to have access to digital financial services offered by many financial institutions.  In conjunction with other technologies offering digital identity tools, blockchain technology, which is the technology driving cryptocurrencies, can be of assistance in the establishment of a decentralised digital identity management data system which will enhance access to financial institutions and products for individuals.  Cryptocurrency and financial inclusion  Already the fintech company, Ethereum, is a leading light, having designed an application which has an algorithm capable of capturing people’s facial profile and voice recognition.  Unbanked persons in South Africa, Botswana and Zimbabwe can potentially benefit from using this digital identity technology as they will then not be required to always have a physical identity document, a passport or an email account for them to participate in financial transactions.  Cryptocurrency and financial inclusion  For South Africa, digital identity may provide a solution to the current problem of identity theft, which results in unauthorised transactions arising from the unlawful use of a person’s identity document.  Many unbanked or under-banked persons in South Africa, Botswana and Zimbabwe have chrometophobia.  Cryptocurrency and financial inclusion  This is especially so in Zimbabwe, which once experienced a near collapse of its banking system in the last decade.  Ideally, when the client-bank relationship has broken down due to mistrust, there is a need for to rebuild it or alternatively introducing new facilitators and guarantors in the client- bank relationship.  Cryptocurrency and financial inclusion  Cryptocurrencies satisfy this need by offering an alternative to the traditional financial intermediaries, thereby attracting the unbanked.  The use of cryptocurrencies’ also allows people in South Africa, Botswana and Zimbabwe to store their money through instruments they have control  Cryptocurrency and financial inclusion  The blockchain technology underlying cryptocurrencies substitutes trust in the traditional intermediaries with computer generated codes and rules which define how transactions are concluded, thereby providing a highly independent and autonomous technology- based currency and value exchange while avoiding system abuses from financial managers or employees.  Cryptocurrency and financial inclusion  This reduction of information asymmetries also results in the reduction of costs. The need for the replacement of financial intermediaries is greater in South Africa, Botswana and Zimbabwe where trust in these intermediaries is lower than in developed countries such as the US. France and Britain, which supports the uptake of cryptocurrencies  Cryptocurrency and financial inclusion  Envisaged financial inclusion gains derivable from cryptocurrencies will largely remain a pipe dream if South Africa, Botswana and Zimbabwe fail to develop and adopt a robust legal framework capable of effectively dealing with digital fraud, illicit money flows and money laundering, in addition to strengthening the present cybersecurity accountability mechanism  Regulating cryptocurrency in pursuit of financial inclusion  Financial inclusion benefist from crptocurreny necessitates a shift in the debate from whether cryptocurrencies should be adopted and regulated to a more nuanced pragmatic position of how cryptocurrencies can be regulated in a manner that addresses the challenges associated with their usage while simultaneously maximising on their financial inclusion benefits  Regulating cryptocurrency in pursuit of financial inclusion  Already some countries, such as the United States of America (US), Canada, Australia, Germany, Switzerland, France and Japan, are in the process of developing a pro-cryptocurrencies financial regulatory framework or environment.  El Salvador enacted the first comprehensive Blockchain and Cryptocurrencies Regulation 2021, which declares Bitcoin as legal tender in the country  Regulating cryptocurrency in pursuit of financial inclusion  Central banks in South Africa, Botswana and Zimbabwe have issued either official statements or position papers on cryptocurrencies re-asserting that they are the sole authority legally permitted to issue legal tender and that cryptocurrencies are not legal tender in their respective jurisdictions  Regulating cryptocurrency in pursuit of financial inclusion  The 2014 Position Paper on Virtual Currency and the 2019 Consultation Paper on Policy Proposals for Crypto Assets issued by South Africa, state that crypto asserts are not recognised as legal tender in South Africa.  The position of the South African Reserve Bank is informed by sections 1 and 17 of the South African Reserve Bank (SARB) Act as well as section 15 (3)(c) of the Currency and Banking Act which exclusively limit legal tender to banknotes, bank-based digital currencies and coins issued only by the SARB.  Regulating cryptocurrency in pursuit of financial inclusion  Similarly, sections 22 and 23 of the Bank of Botswana Act and sections 40, 41 and 44 of the Reserve Bank of Zimbabwe Act limit legal tender to conventional currencies declared as such by central banks.  In 2022, South Africa adopted a statutory instrument declaring cryptocurreny as financial assets.  The way forward  In searching for an appropriate cryptocurrencies regulatory model, the wisdom embedded in the current centralised conventional financial system regulatory model should be considered.  The model is premised on regulating against market failure, with a thematic focus on the idea that “regulation should begin where the market failures can potentially occur  The way forward  The orthodox approach to financial sector governance is deployed towards minimising risks in financial markets emanating from the market participants and other sources.  Such risks can originate from conduct such as market manipulation, fraud, consumer exploitation, cryptocurrencies’ volatility, tampering with the ledgers’ system, anti-competitive acts and oligopolies, tax evasion issues, governance problems, and other forms of risk connected to the issue of central bank backed digital currencies and microeconomic instability  The way forward  Similarly, these risks also plague cryptocurrency transactions and markets. Due to the virtual nature of cryptocurrency transactions, risks such as privacy and identity theft concerns can be added.  The orthodox approach becomes difficult to apply in circumstances where the participants have no real time presence or representation or a place of domicile. This problem can largely be avoided through the development of a regime consisting of indirect decentralised cryptocurrencies regulation  The way forward  A decentralised indirect cryptocurrencies regulation in South Africa, Zimbabwe and Botswana would be anchored on identifying the financial institutions who offer precise points of connection between the cryptocurrencies world and the real time world.  Such an approach would then be premised upon new and some old elements drawn from the current regulatory mechanisms, including the twin peaks model in South Africa and the financial prudential supervision and management systems existing in Botswana and Zimbabwe  The way forward  Instead of targeting the cryptocurrency technologies, prototype layers and codes, this amalgamated financial regulation mechanism would largely govern cryptocurrency applications, users and use-points. Other traditional gatekeepers such as cryptocurrency banks, lenders, exchanges and wallet providers, custodians and merchant acceptance facilities would be regulated as well.  The way forward  Such a decentralised hybrid regulatory approach would rely on the central banks in South Africa, Botswana and Zimbabwe designing rules for the intermediaries enforced through the known traditional institutions such as banks, payment services providers, exchanges, miners and other new participants. This approach circumvents direct regulation of coders whose identity maybe unknown.  The way forward  the South African Reserve Bank (SARB), Bank of Botswana and Reserve Bank of Zimbabwe, being central banks, should be authorised to have a supervisory and regulatory responsibility to monitor cross-border financial outflows in respect of various crypto assets.  This would require the amendment of section 10(4) of the Exchange Control Regulation to include cryptocurrencies in the definition of ‘capital’ for the purposes of exchange control regulation in South Africa.  The way forward  Changes to inter alia, section 2(d) of the Zimbabwe Exchange Control Act as well as sections 10 and 11 of Botswana’s Exchange Control Act should be made to authorise dealers to facilitate and report transactions involving transfer of foreign currency for the purpose of purchasing cryptocurrencies abroad.  The way forward  A plethora of legislative amendments should be made declaring cryptocurrencies as a financial product via the Financial Advisory and Intermediary Services Act (South Africa), Botswana’s Banking Act and Non-Bank Financial Institutions Regulatory Authority Act and Zimbabwe’s Securities Act. This would require cryptocurrency service providers to become licenced intermediaries and provide for the rendering of advice by such entities.  The way forward  Such a development allows for regulatory oversight and will assist in addressing the risk of exploitation of consumers by unscrupulous entities. Additional changes to the legislation governing traditional payment systems including South Africa’s National Payment Systems Act, Botswana’s National Clearance and Settlement Systems Act and Zimbabwe’s National Payment Act favouring cryptocurrencies’ acceptance and widespread uptake would create more opportunities for these three countries to reap the financial inclusion benefits and potential of cryptocurrencies.  Concluding remarks  The idea that cryptocurrencies could be instrumental for the successful pursuit of financial inclusion has attracted the attention of government officials, investors, scholars and financial services regulators across the world  However, cryptocurrencies can indeed be a vehicle for promoting financial inclusion because of their intrinsic nature which enables them to perform multiple functions as a medium of exchange, assets and investment instruments.  Concluding remarks  The idiosyncratic characteristics of cryptocurrencies enables them to be deployed as sui generis instruments of payment, assets and investments, enabling them to challenge conventional financial tools for transacting, storing and transferring economic value.  It has been shown that cryptocurrencies, being denationalised peer-to-peer-based instruments, could result in unbanked persons in emerging market economies being attracted to their use and adoption  Concluding remarks  Cryptocurrencies can promote financial inclusion by enlarging the gap for monetary innovation in South Africa, Zimbabwe and Botswana, thereby lowering the cost of transactions, making the countries less dependent on the traditional use of cash, and promoting the transnational mobility of money.  Concluding remarks  South Africa, Botswana and Zimbabwe should develop a decentralised indirect cryptocurrencies regulatory model in order for them to reap the financial inclusion benefits emanating from the adoption of cryptocurrencies technology. Such a model of decentralised regulation would be the most optimal regulatory approach to governing decentralised cryptocurrencies’ transactions  Concluding remarks  The absence of visible target institutions and the anonymity accompanying most cryptocurrency transactions makes the orthodox regulatory approach prevalent in the financial sector unsuitable for cryptocurrencies’ regulation. A decentralised regulatory model would target known institutions such as banks, payment services providers, exchanges, miners, cryptocurrencies e-wallet providers and other emerging intermediaries  Concluding remarks  In this context, the underlying regulatory philosophy would be two-fold, namely, the reduction of systemic risk as well as maintaining the integrity and safety of cryptocurrency transactions. This could result in a significant deepening and strengthening of the ongoing initiatives aimed at ensuring that financial inclusion becomes a reality in South Africa, Botswana and Zimbabwe.