Uganda and Mauritius embrace the crypto challenge
25 July 2023
The growth of cryptocurrencies as both a store of value and means of payment has presented lawmakers across the continent with a legislative challenge. AGA member Kenneth Muhangi from KTA Advocates talk to Africa Legal about how Mauritius and Uganda are handling the issue.
Mobile money solutions have mushroomed across Africa, with payment apps such as Mpesa, MTN Mobile Money and SafeBoda allowing millions of Africans to make mobile payments from their smartphones. Some of them use cryptocurrency to pay for goods and services, and convert cryptocurrencies into mobile money and vice versa, necessitating new regulations.
The VAITOS Act defines a virtual asset as “a digital representation of value that may be digitally traded or transferred, and may be used for payment or investment purposes; but (b) does not include a digital representation of fiat currencies, securities and other financial assets that fall under the purview of the Securities Act.”
Under this definition, native tokens like Bitcoin, Ethereum and stablecoins are considered Virtual Assets (VAs) falling under this law.
Mauritius is an international financial centre which is compliant with all of the 40 recommendations of the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog. Importantly, through the provisions of the VAITOS Act, it is compliant with recommendation 15 of the FATF which requires that VASPs be regulated for AML/CFT purposes, that they be licensed and subject to an effective system of monitoring or supervision. This feature places Mauritius as a worthwhile jurisdiction for serious players in this field.
The VAITOS Act provides licensing requirements for different VASPs operating in the crypto space, notably virtual asset broker-dealers, custodians, wallet services, advisory services and market places (such as crypto exchanges).
The VAITOS Act also regulates the issuance of tokens, which is defined as “any cryptographically secured digital representation of a set of rights, including smart contracts, provided on a digital platform and issued or to be issued by an issuer of initial token offerings”.
The Financial Services Commission has also issued a number of guide notes in this area, most notably on security tokens and NFTs. Others, such as those on Decentralised Autonomous Organisations and stablecoins, are expected to be issued soon.
While Uganda has no comprehensive or standalone legislation on cryptocurrencies, this is currently being workshopped, says Kenneth Muhangi, partner at KTA Advocates, also a member of Alliott Global Alliance. He explained that dealing in cryptocurrencies intersects with other laws in Uganda, notably the Foreign Exchange Act, which deals with the import and export of funds, and the National Payments Systems Act.
“There was a high court decision a few months ago that excluded cryptocurrencies from the National Payments Systems Act, though there are some restrictions. In April this year, the Bank of Uganda issued a circular warning that it is illegal to convert cryptocurrencies into mobile money and vice versa. It also warned entities licensed under the National Payment Systems Act to desist from facilitating cryptocurrency transactions,” Muhangi shared.
“There is also a private member bill where the Ugandan Capital Markets Authority is seeking to regulate crypto assets as virtual assets, so we are engaging with the authorities to make sure we adopt global best practices when it comes to cryptocurrencies,” he noted.
Muhangai explained that, given the lack of formal regulation in Uganda, it is not illegal to trade in cryptocurrencies or to use this as a means of payment. He says growing public demand has resulted in a few crypto exchanges opening in Uganda, although, for most people, this remains an obscure fringe of the financial world, and one that’s regarded with some suspicion, given the number of scams associated with cryptos.
Recently shortlisted in the Africa Legal Awards for Network/Alliance of the Year and ranked as a Band 1 Law Firm Network by Chambers and Partners, AGA is now one of the largest professional services alliances in Africa, with coverage in Algeria, Botswana, Egypt, Kenya, Lesotho, Libya, Malawi, Mauritius, Morocco, Nigeria, South Africa, Tanzania, Tunisia, Uganda, Zambia and Zimbabwe.
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Further reading:
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A perfect alliance across professions - expanding AGA's footprint in Africa
About Alliott Global Alliance:
Founded in 1979, and with 220 member firms operating from 300 offices in 95 countries Alliott Global Alliance is an international alliance of independent, law, accounting, and specialist advisory firms, working across the world Together as One.
Each of our members share a common goal: to learn and share knowledge, resources, and opportunities to make the world smaller and their businesses stronger. We work with a spirit of generosity and openness — so that together, we can continue to fulfil our ambitions, gain greater experience, and drive mutual success.
Alliott Global Alliance is expanding fast, and the alliance has its sights set firmly on growing its legal and accounting membership to 100 countries. Opportunities are available to independent professional firms in specific countries in Africa, but also in Europe, China, the ASEAN region, Australasia, the Gulf Cooperation Council region, Central and South America and in North America. For information about membership in Africa email membership@alliottglobal.com