Botswana Deems Crypto Risks “Minimal”, Urges for Regulation

Key Takeaways

• The Bank noted that, at present, the domestic crypto market is relatively isolated, limiting its impact on financial stability.
• The central bank warned that the increasing integration of crypto markets with traditional financial systems could lead to systemic risks in the future, if left unaddressed.

Botswana’s central bank has released its latest Financial Stability Report, mentioning the “minimal” risks posed by the country’s currently underdeveloped crypto markets. However, the report emphasized the need for proactive regulation to mitigate potential risks that could emerge as the digital asset sector expands in the coming years

The Bank of Botswana noted that, at present, the domestic crypto market is relatively isolated, limiting its impact on financial stability. Despite this, the report pointed out that misconduct within the crypto space remains a regulatory concern.

The central bank called on regulators to establish effective oversight frameworks to address these challenges. It stated, “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 central bank identified broader fintech developments as an area of minimal immediate risk but acknowledged that these risks could grow as technological innovations increasingly penetrate Botswana’s markets. While fintech can enhance efficiency and financial inclusion, the report highlighted its potential for exploitation for illicit activities.

The Bank of Botswana specifically flagged 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 presents an opportunity for money laundering in the financial sector,” the central bank noted.

It further warned that the complexity and global reach of these technologies allow illicit funds to be transferred with low detection risks, underscoring the urgent need for robust anti-money laundering (AML) and counter-terrorist financing (CTF) measures.

The central bank in its report stated that regulators should ensure compliance from virtual asset service providers, such as cryptocurrency exchanges, with AML and CTF regulations. It also stressed the importance of market surveillance and regular collaboration with law enforcement agencies to identify and address illegal activities within the sector.

Despite its cautionary tone, the report acknowledged that cryptocurrencies and digital payment platforms are not currently a significant threat to the stability of Botswana’s financial system.

However, the central bank warned that the increasing integration of crypto markets with traditional financial systems could lead to systemic risks in the future if left unaddressed. In 2022, Botswana passed the Virtual Assets Bill noting that any company that offers crypto services or anything-tied digital tokens should obtain a Non-Bank Financial Institutions Regulatory Authority license.