By Edrine Wanyama |
The Collaboration on International ICT Policy for East and Southern Africa (CIPESA) has called for the regulation of regulation of cryptocurrencies in Uganda. Through a policy brief which was published in October 2023, CIPESA outlines the potential risks and threats that civil society organisations (CSOs), individuals, companies, financial institutions, media and academia including students potentially face if operations of cryptocurrencies are not checked.
Uganda’s legislative frameworks though specific including the, Capital Market Authority Act, Cap. 84 Anti-Money Laundering Act (as amended by the Anti-Money Laundering (Amendment of Second Schedule) Instrument, No. 136 of 2020), Foreign Exchange Act of 2004, Electronic Transactions Act, No. 8 of 2011, Electronic Signatures Act, No. 7 of 2011, Computer Misuse Act, No. 2 of 2011 and the National Payment Systems Act, 15 of 2020 recognise the presence and application of cryptocurrencies. However, they appear to be in contradiction with legal developments in the country.
A ruling by Justice Ssekaana Musa in the case of Silver Kayondo versus Bank of Uganda, Miscellaneous Cause No. 109 of 2022 declared that cryptocurrencies, under the current National Payment System Act, are illegal or unlawful and are not accepted as a general payment instrument; and that the Bank of Uganda had the mandate to issue directives to the licensees under the National Payment System. He added that: “… The current regulatory framework was not designed with cryptocurrencies in mind…”. Although this ruling gives clarity on Uganda’s current position on cryptocurrencies, it leaves further ambiguity over the extent to which other regulations other than the National Payment Systems Act, 2020, can be relied upon in the utilization of cryptocurrencies.
The brief highlights potential strength of cryptocurrencies as including the elimination of middlemen, decentralized usage as well as enhanced security of the consumer. Similarly, the available opportunities include the unique and private nature of transactions between parties and the potential to create more job opportunities in the tech world. However, the associated weaknesses include the unsecure nature of cryptocurrencies, possibility of erroneous transfers and the possible erosion of capital flow measures. Furthermore, the risks associated with use of cryptocurrencies include the near impossible monitoring and track down of illegal activities by governments, possibility of getting locked out of transactions accounts once a private key is lost and the general threat to the effectiveness of monetary policies especially where firms and households prefer to save and invest in crypto assets that are not pegged to domestic fiat currency.
While drawing impetus from other jurisdictions and application of cryptocurrencies, the brief makes reference to Kenya where cryptocurrency companies can only legally operate after acquiring a license from Kenyan authorities to offer transmission services within Kenya; South Africa where the plans to plans to start licensing crypto trading companies to prevent theft, money laundering and undermining of the monetary policy are in high gears; Central African Republic where Bitcoin was regulated in April 2022 but shortly reversed shortly thereafter after intervention from the regional body, the Economic and Monetary Community of Central Africa (CEMAC); the United States of America where Individuals and businesses that store or exchange any kind of crypto currency have to obtain a cryptocurrency license as operators of Money Service Business (MSB); and in El Salvador which is in full regulation of cryptocurrencies since 2021.
Meanwhile, CIPESA on September 27, 2023 held an advocacy engagement on strengthening digital rights protection including the potential impacts of cryptocurrencies on CSOs in Uganda. The meeting which attracted more than 60 participants from CSOs, Members of Parliament (MPs), telecommunication companies (telcos), Internet Service Providers (ISPs) and national human rights institutions deliberated ways to strengthen the stakeholder platform for digital rights protection including in access, affordability and realization of rights and livelihoods and the potential impacts of cryptocurrencies on CSOs’ and citizens operations in Uganda.
Cryptocurrencies are portrayed in the policy brief as facilitating digital technologies and with to improve efficiency in trade as they bypass middlemen and all the inconveniences that go with financial transactions in the ordinary business sense. They cannot be disregarded as they are inevitable yet associated with risks and threats which require strategies for mitigation as well as enhancing accountability.
It is important that Uganda exploits the various approaches for the adoption and application of cryptocurrencies so as guaranty safety and minimize potential risks and threats to consumers. The brief specifically fronts the following recommendations.
- Government MDAs, particularly Bank of Uganda, Ministry of Finance, Planning and Economic Development, Uganda Revenue Authority and Finance Intelligence Authority, should clearly define the legal status of cryptocurrencies and avoid the ambiguity under the current regulations for e-transactions so as to be able to enforce them on all inflows and outflows in business and personal accounts. This includes redesigning capital controls to include flows channeled through cryptocurrencies. In the same vein, well-structured regulation on cryptocurrencies would remove uncertainties for other stakeholders in the private sector and thus encourage their engagement in digital transactions involving crypto assets.
- The regulatory regime can never be able to effectively catch up or be at the same pace as the technical evolution of cryptocurrencies. As such, Uganda should work with regional and international partners in the establishment and implementation of a global or regional cryptocurrency regulatory treaty that considers the needs and challenges of developing countries. This includes, among others, technological transfer and capacity development; addressing the risks involved in cross border cryptocurrency transactions inclusive of money laundering and jurisdictional issues.
- Apart from embracing a regional or international treaty, regional or international economic corporation or collaboration is also necessary due to the cross-border nature in the operation of cryptocurrencies. Uganda and partner States should engage in the sharing of a comprehensive system of information on cryptocurrency development and trading systems. Such information sharing would be beneficial for capacity development, strengthening joint enforcement measures as well as address evasion of capital controls and enforcement of taxes.
- As opposed to the general perception that crypto assets fall under the interpretation of securities under the Capital Markets Authority Act, so as to warrant their regulation under that law, clarity is required in this regard. The Capital Markets Authority should develop guiding principles as to how security tokens can be utilized to mitigate any risks due to a confusion in this regard.
See the full brief here