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IMF urges tight rules for crypto innovations in CMA sandbox
Currently, companies seeking admission into the sandbox must meet certain minimum requirements of all capital market participants and must be a registered company in Kenya or any other jurisdiction globally.
The International Monetary Fund (IMF) has urged the Capital Markets Authority (CMA) to keep a tight watch on participants in its “sandbox” who plan to trade on digital securities to limit risks in real-life situations even as the country strove to keep up with rapid advances in technology.
A “sandbox“ allows the testing of new services in the market with real customers but within a controlled regulatory environment.
The CMA runs a sandbox to enable companies to try out new technology, such as crypto assets, for trading and settling digitised bonds and stocks.
“The CMA’s monitoring of the unauthorised participant should be done in a way to allow for an early detection of potential risks and the implementation of remedial actions before the materialisation of the risks,” said the lender.
“The CMA should consider additional safeguards such as continuous monitoring of the fitness and propriety of key function holders and the recruitment of experienced senior compliance managers on the part of the participant.”
On regulating the fast-growing crypto market, the multilateral lender asked the regulator to impose a compulsory requirement for companies seeking admission to the sandbox to hire an experienced senior compliance officer to ensure they comply with the safeguards put in place to protect users.
Crypto firms are those that offer products or services that utilise the technology of digital assets and tokens, which are virtual forms of assets like money or securities.
According to the IMF, adding the extra safeguards for crypto companies will enable the regulator to timely detect risks posed by the innovations and avert them before they significantly affect users.
The sandbox was started in 2019 to enable the testing of new solutions before they are rolled out into the mass market. So far, it has admitted 17 companies, and six have exited, but crypto-related ones have remained relatively rare.
Of the 17, only three deploy the crypto technology and they are yet to graduate from the testing phase. All three are testing tokenisation of real estate and other assets i.e. digitising them and breaking them into smaller units tradeable online.
Currently, companies seeking admission into the sandbox must meet certain minimum requirements of all capital market participants and must be a registered company in Kenya or any other jurisdiction globally.
While interest from crypto companies has been intense, the CMA is yet to approve any that directly deals with digital assets as a security, as there are no clear regulations governing the sector yet.
“If the CMA should consider admitting crypto asset applicants to the CMA Sandbox in the future, appropriate resources and safeguards should be put in place before the commencement of crypto asset related Sandbox tests,” said IMF.
Specifically, the lender, which had sent a technical team to Kenya to assist the CMA in developing regulations for the crypto industry, wants the regulator to hire more experienced staff in matters of crypto.
The National Treasury last week released a draft national policy that will guide the regulation of cryptocurrencies and digital tokens to curb tax evasion, fraud and cybercrime amid growing use of the emerging assets.