Financial Crime World

Cryptocurrency Compliance Issues in Uganda Spark Regulatory Concerns

A recent policy brief published by the Collaboration on International ICT Policy for East and Southern Africa (CIPESA) has highlighted the need for regulation of cryptocurrencies in Uganda to mitigate potential risks and threats. The brief, released in October 2023, emphasizes that despite Uganda’s legislative frameworks recognizing the presence and application of cryptocurrencies, there is a lack of clarity and consistency in the current regulatory environment.

Regulatory Environment

The National Payment Systems Act, 2020 has recently been interpreted by a court ruling to declare cryptocurrencies illegal. However, this decision has left many questions unanswered, highlighting the need for a clear legal framework for cryptocurrencies in Uganda. The brief notes that while cryptocurrencies have potential strengths, such as eliminating middlemen and enhancing security, they also pose significant risks, including:

  • Unsecure nature of transactions
  • Threat to monetary policies

Global Perspective

The policy brief draws inspiration from other jurisdictions where cryptocurrency regulation is in place, citing examples such as:

  • Kenya: has a regulatory framework for cryptocurrencies
  • South Africa: has a regulatory body that oversees the use of cryptocurrencies
  • Central African Republic: has legalized cryptocurrencies as an official currency
  • United States: has a patchwork of regulations at the state and federal levels
  • El Salvador: has made Bitcoin legal tender

Recommendations

The brief recommends that Uganda:

  • Develops a clear legal framework for cryptocurrencies to avoid ambiguity and ensure effective enforcement
  • Works with regional and international partners to establish a global or regional regulatory treaty that addresses the needs and challenges of developing countries
  • Engages in information sharing on cryptocurrency development and trading systems with partner states to strengthen joint enforcement measures and address evasion of capital controls and taxes

Stakeholder Engagement

CIPESA recently held an advocacy engagement on strengthening digital rights protection in Uganda, which attracted over 60 participants from civil society organizations, parliamentarians, telecommunications companies, internet service providers, and national human rights institutions. The meeting discussed ways to strengthen the stakeholder platform for digital rights protection and addressed the potential impacts of cryptocurrencies on civil society operations in Uganda.

Next Steps

Uganda is urged to:

  • Clearly define the legal status of cryptocurrencies to avoid ambiguity and ensure effective enforcement
  • Work with regional and international partners to establish a global or regional cryptocurrency regulatory treaty
  • Develop guiding principles for security tokens to mitigate risks due to confusion over their classification

With the growth of cryptocurrencies, it is essential that Uganda develops a comprehensive regulatory framework to ensure safety and minimize potential risks to consumers.