Cryptocurrency Regulation in Botswana Prior to 2023

Botswana, prior to 2023, made significant strides in the regulation of cryptocurrencies and virtual assets. The introduction of the Virtual Assets Act of 2022 marked a pivotal moment in the country’s approach towards this emerging sector.

The Virtual Assets Act of 2022

The Virtual Assets Act of 2022 came into effect on 25 February 2022, ushering in the regulation of cryptocurrencies, a sector previously largely unregulated. The Act extended to the sale, trade of virtual assets, and the regulation of licensing for virtual assets service providers, including entities that operate cryptocurrency exchanges. This legislation represented a major step in integrating cryptocurrency into Botswana’s formal economic structure​​.

Definition and Scope of Virtual Assets

The Act defined virtual assets as digital representations of value that can be digitally traded or transferred, and used for payment or investment purposes, or distributed through distributed ledger technology. This included virtual tokens, with cryptocurrencies falling squarely within this definition. Notably, the Act excluded digital representations of legal tender and securities or financial assets regulated under different acts from its definition of virtual assets​​​​.

Licensing Requirements

A key provision of the Act was the requirement for all persons offering virtual asset services to be licensed by the Non-Bank Financial Institutions Regulatory Authority. This requirement applied irrespective of the location of these service providers, as long as their target market included persons resident in Botswana, thus giving the Act extraterritorial jurisdiction. Failure to obtain the necessary license could result in heavy fines and possible imprisonment, emphasizing the Act’s commitment to regulating this sector​​.

Licensing Criteria and Public Register

Before issuing a license, the Regulatory Authority assessed whether applicants were fit and proper persons, with adequate resources, infrastructure, and staff to carry out virtual asset business activities. This included both natural persons and legal entities. Additionally, the Authority established and maintained a public register of persons licensed to conduct virtual asset business, ensuring transparency and accountability within the sector​​​​.

Operational Standards and Requirements

Licensed virtual assets service providers were required to adhere to high standards of conduct, including acting honestly, fairly, and with due care, skill, and diligence. They also needed to implement measures for customer protection, data confidentiality, and effective corporate governance arrangements. The Act mandated systems and controls for recording, storing, protecting, and transmitting information, as well as measures for safeguarding and administering customer-owned virtual assets​​.

Disclosure and Reporting Requirements

Providers were also required to publish a white paper providing full and accurate disclosure about the virtual assets on offer, enabling potential purchasers to make informed decisions. This had to be readily accessible and downloadable from the licensee’s website or published in local media. Additionally, licensed providers were obligated to file audited financial statements with the Regulatory Authority, covering all transactions related to their virtual assets business activities​​​​.

Transition Provisions

For those already operating a virtual assets business before the Act’s commencement, there was a requirement to apply for licensing within three months of the Act’s start. This provision ensured that existing businesses aligned with the new regulatory framework, emphasizing the Act’s comprehensive scope​​.

In summary, prior to 2023, Botswana demonstrated a proactive and structured approach to cryptocurrency regulation. The Virtual Assets Act of 2022 established a clear legal framework, emphasizing licensing, operational standards, transparency, and accountability. This legislative landscape played a crucial role in integrating cryptocurrencies into Botswana’s broader economic and regulatory environment.