NAIROBI, KENYA; The Capital Markets Authority (CMA) has proposed the creation of a special unit to deal with issues arising from the growing popularity of cryptocurrencies.
In the proposal, the capital markets regulator says the special unit would be an arm of all relevant regulators such as itself and Central Bank of Kenya (CBK) to help address challenges that come with adopting digital currencies.
This is contained in the Capital Market Soundness Report, themed ‘Staying the course in a Turbulent World of Increasing Protectionism’, which CMA Chief Executive Paul Muthaura released on Friday.
“There is need for regulators to devise a common approach towards handling issues revolving around cryptocurrencies and Initial Coin Offerings (ICOs),” CMA says in the report.
“A joint workgroup by financial sector regulators could be put in place to tackle issues around cryptocurrencies and ICOs.”
In February, the regulator issued a notice warning investors against taking part in ICOs, saying it had not approved any offerings.
It said all ongoing offerings were unregulated and speculative investments with considerable risk exposure to investors. CBK has also taken a similar position, advising the public against Bitcoin, one of the most popular digital currencies.
The currency has experienced sharp value fluctuations. Its was trading at a high of about $17,000 (Sh1.7 million) early this year but experienced a downward spiral to settle at $6,926 (Sh700,000) at the end of March. “This volatility in price fluctuation remains a concern even as regulators seek to strike a balance between managing the risks that accompany innovations and avoiding being an impediment to market-led innovation,” says CMA.
The market excitement in cryptocurrencies has shifted to a debate on regulatory risk and CMA says that regulators need to communicate their willingness to accommodate FinTechs (financial technologies) so as to remove the perception that regulators are innately hesitant to appreciate new innovation.
CBK Deputy Governor Sheila M’Mbijjewe told participants at the Euromoney East Africa Conference early this month that new technologies such as blockchain should be cautiously embraced, with focus on addressing potential pitfalls.
She said there must be a balance between regulating Fintechs and encouraging innovation so that the growth does not come with the erosion of public confidence.
“We (CBK) are not the innovators so we cannot move ahead. If we move behind the market, we will have a problem. Essentially, we have to move alongside innovations,” she said.