Why the ban on cryptocurrency?

On April 29, in its circular, Bank of Uganda (BoU) as a regulator of FinTechs warned all licensed FinTechs to desist from facilitating any cryptocurrency transactions lest they risk losing their operating licenses.

The circular’s implication was immediate, mobile money integrators halted all fiat to crypto transactions to heed to the directive, consequently, crypto-currency enthusiasts, platforms like Yellow Card and Binance communicated the same to their clients.

Like any other investment, crypto has its risks but Bank of Uganda’s circular barring FinTechs from facilitating any trade in cryptocurrency transactions was not backed by any data and a risk assessment report conducted by or on behalf of BoU to inform such a prohibitive circular.

This depicts a regulator that has not appreciated the nature of investments in crypto-currency only playing ‘safe’.

The ban, therefore, leaves more questions than answers; it does not highlight data-based risks that Uganda’s economy may be exposed to if persons trade in crypto nor does it arise from any risk assessment conducted by the regulator in respect of trading in crypto.

Although BoU seems to argue that trading in crypto is risky, there are more risky financial instruments like options facilitated by FinTechs that have existed and traded on the market but the Central Bank has never issued a deterrent ban on them. Many people have aggressively advertised and traded in options online and they have lost money but BoU and the Capital Markets Authority have never issued a warning or offered regulatory guidance to regulate conduct of platforms offering trading in such highly risky financial instruments.  

In regulating an industry like FinTech which is shaped by advancements in technology, it is pertinent to ensure new, more flexible ways of engaging with the financial services industry in order to support technology–enabled innovation in the financial services industry.

In the same spirit, BoU in collaboration with the Capital Markets Authority ought to offer regulatory guidance to FinTechs and Crypto exchanges/trading platforms.

Bank of Uganda in collaboration with the Capital Markets Authority therefore needs to properly communicate the risks involved in trading in crypto to all players in the market especially investors.

Trading platforms would also be required to test the knowledge of the persons that wish to invest or trade in crypto before they trade or invest to ensure that they understand the risks associated with trading in the volatile crypto.

In a bid to combat any financial crimes arising from crypto transactions, the Financial Intelligence Authority and other players should play their oversight roles since FinTechs and Crypto Trading platforms are already classified as accountable persons under Uganda’s Anti – Money Laundering Act.

Andrew Wandera, Crypto and FinTech Lawyer