Bank of Uganda to allow crypto models on its regulatory sandbox

The Bank of Uganda (BoU) has hinted that it is open to the idea of crypto firms participating in the regulatory sandbox.

Bank of Uganda to allow crypto models on its regulatory sandbox
Nearly 2% of Ugandans use crypto.

In a letter dated June 1, 2022, the Bank of Uganda (BoU) accepted the proposal of the Blockchain Association of Uganda (BAU) that is aimed at sharing ideas around crypto business models and testing their eligibility under the regulatory sandbox.

Pursuant to Section 16 of the National Payment Systems Act, 2020 and the NPS regulations, BoU announced [PDF] the launch of a Regulatory Sandbox Framework [PDF] that will allow fintech start-ups to test their innovative financial solutions in a controlled environment in June 2021.

As of June 2021, the then Governor of the BoU said that "So far, M/s Wave Transfer Limited received approval to test Quick Response (QR) technology under the Sandbox arrangement on April 12, 2021. Bank of Uganda invites more firms to develop and test financial innovations under the Regulatory Sandbox."

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A Regulatory Sandbox is a set of rules and requirements that allows innovative financial solutions, for example, fintech startups, to be tested in a live controlled environment with BoU’s oversight and subject to the necessary safeguards.

BoU circular to the Blockchain Association of Uganda is coming after a meeting it held with the officials of the association on 5 May 2022. BAU said in a tweet that they are looking forward to "working with the bank in shaping the opportunity for crypto in Uganda, while proactively mitigating the potential risks and ensuring consumer protection."  

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The Bank of Uganda issued a conflating stance on crypto in April 2022 when it warned: "all licensed entities under the National Payment Systems Act, 2020 to desist from facilitating cryptocurrency transactions."

And also to threaten erring licensees with revocation or suspension of licence, as contained in its Payment Act 2020. "Bank of Uganda shall not hesitate to invoke its powers under Section 13(l) (b) & (f) of the NPS Act, 2020 for any licensees that will be found in breach of the above directive," the Ag. Director of the National Payment Systems (NPS), Bank of Uganda, Andrew Kawere said.

However, in an interview on May 6, 2022, Kawere told Reuters that "the central bank has [only] cautioned licensed payments service providers to go slow on them" and that the "Bank of Uganda hasn’t banned cryptocurrency, we have simply applied some speed brakes."

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Going by the available timeline, Kawere granted an interview to Reuters a day after the BoU met with the Blockchain Association of Uganda—which was held a week after the bank issued the crypto cease and desist. 

In a letter addressed to Kwame Rungunda, the chairperson of BAU, Kawere hinted that the deliberations between the bank and the team from BAU influenced its position on the participation of crypto firms. He also advised crypto firms to read the Sandbox regulations and framework.

Crypto adoption in Africa is heating up, catching the attention of many venture funds and crypto firms. Between 2020 and 2021, crypto use in Africa increased by nearly 1,200% and nearly 2% of Ugandans use crypto.