FROM SIDE CHICK TO A WIFE-THE REGULATION OF DIGITAL ASSETS IN GHANA-By:Patrick Boamah Kwakye

Believe it or not, digital assets (currencies) have come to stay as long as we belong to the global world. These currencies have block chain embedded in it making them a strong substitute to the fiat currencies we have been using. The developed countries will not wait for the developing countries; it is either we move fast by learning from the mistakes made by them and correct them by putting a more robust regulation framework and conducting a comprehensive stakeholders’ engagement with law enforcement agencies, regulatory and supervisory agencies, competent authorities, academia, media, parliamentarians, students etc.

A cryptocurrency is a digital currency (asset) that is decentralised, based on mathematical algorithms and holds value. When the evolution of digital assets started, most jurisdictions, including Ghana, were reluctant to embrace this new “Rambo” in town as a result of fear that it might collapse the financial system and make the monetary policy inflation-targeting regime to become ineffective. Few years ago, both Bank of Ghana (BoG) and Security and Exchange Commission (SEC) issued a joint notice expressly indicating that they do not recognise digital currency as legal tender in Ghana and cautions the public against trading in digital currency offered on trading platforms. They further cautioned that members of the public who deal with such companies do so at their own risk and will not receive any protection from the SEC and BOG. Ironically, Satoshi had an answer for us: “writing a description for this thing for general audiences is bloody hard. There’s nothing to relate it to and “if you don’t believe or don’t get it, I don’t have the time to convince you-sorry”. Fortunately for Ghana, we have decided to take a bold step in our attempt to regulate these digital assets in our jurisdiction and to provide a legal framework on the use of same not to affect our financial ecosystem in Ghana.

CAN DIGITAL ASSETS BE REGULATED?

The answer is yes. According to the Financial Action Task Force (FATF), Recommendation 15, which is also called the travel rule, countries should ensure that virtual asset service providers are regulated for AML/CFT purposes and licensed or registered and subject to effective systems for monitoring and ensuring compliance with the relevant measures called for in the FATF

Recommendations. The Anti-Money Laundering Act 2020 (Act 1044) mandates all businesses intending to engage in digital/virtual currencies must be subject to the same customer due diligence, appointment of AML Compliance Officer, Know-Your-Customer (KYC), submission of suspicious transaction reports, and currency transaction reports to the Financial Intelligence Centre (FIC). It is instructive to note that all the financial institutions that deal with fiat money are also subject to the exact requirements in our jurisdiction. Hence, it makes the regulation and supervision of these digital currencies to follow the same preambles. In order to properly regulate digital (virtual assets), Ghana, as a matter of urgency, must licence all virtual asset service providers (VASPs) regulating within its jurisdiction. This means that any digital currency in the jurisdiction that is not operating through a licensed VASP should be considered illegal, and strong administrative sanctions should be meted to VASPs engaged in it. Furthermore, it must be noted that the interpretive note to FATF Recommendation 15 clearly state that:

1. For the purposes of applying the FATF Recommendations, countries should consider virtual assets as “property”, “proceeds’, “funds”, or other assets”, or other “corresponding value”. Countries should apply the relevant measures under FATF Recommendations to virtual assets and virtual assets service providers (VASPs).
2. In accordance with Recommendation 1, countries should identity, assess, and understand the money laundering, terrorist financing and proliferation financing risks emerging from virtual assets activities and activities or operations of VASP.
3. VASPs should be required to be licensed or registered. At a minimum, VASPs should be required to be licensed or registered in the jurisdiction(s) where they are created. In cases, where the VASP is a natural person, they should be required to be licensed or registered in the jurisdiction where their place of business is located.
4. A country need not to impose a separate licensing or registration system with respect to natural person or legal persons already licensed or registered as financial institutions.
5. Countries should ensure that VASP are subject to adequate regulation and supervision or monitoring for AML/CFT and are effectively implementing the relevant FATF Recommendations, to mitigate money laundering and terrorist financing risks emerging from virtual assets.
6. Countries should ensure that there is range of effective, proportionate and dissuasive sanctions, whether criminal, civil or administrative, available to deal with VASPs that fail to comply with AML/CFT requirements in line with Recommendation 35. Sanctions should apply not only to VASPs but also to their directors and senior management.

In line with the above, it is clear that digital assets can be regulated. Again, for effective control of the money supply (m2+) in Ghana, it will be essential to introduce a digital currency in the chain. This will help effective control of inflation targeting to achieve its goal.

The Anti-Money Laundering Act 2020 (Act 1044) define a virtual asset service provider to mean any natural or legal person who is not covered elsewhere under FATF Recommendations and as a business conducts one or more of the following activities or operations for or on behalf of another natural or legal person:

1. Exchange between virtual assets and fiat currency.
2. Exchange between one or more forms of virtual assets.
3. Transfer of virtual assets
4. Safekeeping and administration of virtual assets or instruments enabling control over virtual assets and
5. Participation in and provision of financial services related to an issuer’s offer or sale of virtual assets.

WHICH AGENCIES, COMMISSION OR AUTHORITY REGULATE DIGITAL ASSETS?

A plethora of literature did not come to a consensus on which authority to regulate Virtual Assets (VA) or Virtual Assets Service Providers (VASP). In Ghana, the Bank of Ghana may be given the mandate to regulate and supervise the Virtual Asset and the Virtual Asset Service Providers (VASPs).  Specifically, the Bank of Ghana may create a new department called the Virtual Asset Supervision Department (VASD) to handle all issues concerning virtual assets in Ghana. The Bank of Ghana may not be able to play this role alone. As such, they may be supported by the Security and Exchange Commission (SEC), the Financial Intelligence Centre (FIC), and other authorities that play a significant role in the financial ecosystem in Ghana. 

For effective supervision and regulation of VA and VASPs, the Bank of Ghana must liaise with the following law enforcement agencies:

1. The Office of the Special Prosecutor (OSP)
2. EOCO
3. Ghana Police
4. NIB
5. NATIONAL SECURITY

EFFECTIVE SUPERVISION AND REGULATIONS

For effective supervision and regulations, Ghana should draft and pass the following legislation:

i.   Virtual Asset Act

ii.   Virtual Asset Service Providers Guidelines.

iii. Digital Asset Rules

iv. Crypto Asset Declaration

CONCLUSION:

In Africa, it must be noted that Nigeria, Kenya, South Africa and Namibia have some regulations and supervision of Virtual Assets and Virtual Asset Service Providers (VASPs). Ironically, all these countries are on the grey list of FATF. This further heightens the risk of countries not supervising and regulating VA and VASPs effectively, thereby affecting the financial integrity of the country. Ghana must learn from the mistakes made by these countries and correct them as it attempts to regulate VA and VASPs. 

Ghana must jealously and holistically implement the above supervision and regulation framework as well as hold a comprehensive stakeholder meeting to explain the new phase of digital money the country is ready to embrace. Competent law enforcement agencies must be thoroughly engaged for them to understand the inherent risk and be prepared to curtail same.

Author:

Patrick Boamah Kwakye

(Fellow-Chartered Institute of Economist)