The Bank of Uganda Blacklists Financial Firms on Fostering Crypto Trading
- The Central Bank of Uganda has issued a warning to the general public about using cryptocurrency to do business, claiming that no company has been licensed to provide the services.
- On April 29, Mr. Andrew Kawere, the Director of the Nationwide Fund’s System, stated that the Central Financial institution has noted with concern some entities promoting the conversion of cryptocurrencies into cellular money and vice versa, which he stated is prohibited.
- Anyone or entity involved in dealing in such cryptocurrencies, according to Kawere, will face severe consequences.
Under the National Payments Systems Act, 2020, the Bank of Uganda (BOU), Uganda’s Central Bank, has issued a warning to all licensed enterprises not to facilitate cryptocurrency transactions.
Uganda’s National Payment Systems Act
Parliament passed the National Payment Systems Act, 2020 (“NPS Act”) on May 29, 2020, and it was gazetted on September 4, 2020.
The NPS Act was spurred by a rise in private organizations in Uganda offering various electronic payment products using digital and electronic financial services. Furthermore, financial institutions favoured electronic payments and adopted branchless banking systems, and the automated clearing house for clearing cheques and high-volume electronic funds transfers was introduced.
“We’ve seen press reports and advertisements advising people that they can convert cryptocurrencies to mobile cash or vice versa. In a statement and circular to all licensees dated April 29, 2022, Andrew Kawere, Acting Director, Office of the National Payments System- Bank of Uganda, said, “We are also aware that such a conversion cannot happen without the participation of Payment Service Providers and or Payment System operations.”
The Bank of Uganda stated that no institution has been licensed to offer or assist the transaction in cryptocurrency. This is in line with Uganda’s official position, as expressed by the Uganda Ministry of Finance, Planning, and Economic Development in October 2019.
The Ministry recognized the emergence of the practice of using, owning, and trading crypto-currencies in Uganda in its statement. Mr. Andrew Kawere, the director of the national payments system, discussed the situation and noted that the Central Bank is concerned that some companies are promoting the transformation of crypto coins into mobile money and vice versa, which he defined as illegal. The executive highlighted that the Central Bank has not approved any institution or entity to provide cryptocurrency services to consumers and that as a result, such businesses are not regulated by the government or any of its institutions.
As a result, the top bank reminded payment participants that its stance on cryptocurrencies had not altered since 2019 when it announced that financial service providers were not permitted to facilitate or even trade directly in cryptocurrencies.
As a result, the bank stated that it will not hesitate to use its powers under Ugandan law if any licensees are discovered to be in violation of the foregoing directive.
Furthermore, the Bank of Uganda stated that cryptocurrencies are not considered legal money, and so, owners of such financial assets are not safeguarded if their holdings lose value. There is also no compensation if the owners of such assets refuse to deliver on their promises.
According to the bank, cryptocurrencies can be used for a variety of illegal activities, including:
- Laundering of funds
- Prohibited goods and services are sold as well
- Ponzi and pyramid schemes are examples of fraudulent ventures.
Because cryptocurrencies are not backed by assets or government guarantees, owners are completely associated with the risk of loss or minimizing value because issuers are not required to exchange them for legal currency or other value, the government told Ugandans in 2019 that cryptocurrencies are not backed by assets or government guarantees. As a result, holders are fully exposed to the possibility of loss or diminishing value.
Directives of the Bank of Uganda
The Bank of Uganda stated that if any licensees are found to be in violation of the foregoing directive, it will not hesitate to use its powers under Section 13(1)(b) and (f) of the NPS Act 2020.
The Bank of Uganda has stated that cryptocurrencies are not legal money and that owners of such financial assets are not insured if their holdings lose value. Furthermore, there is no compensation available if the owners of such assets fail to deliver on their promises.
Cryptocurrencies such as Bitcoin have established a strong presence in Uganda as their trading has gained widespread attention. Local consumers are drawn to Bitcoin by a variety of education and awareness activities.
Ugandans are exchanging their Bitcoins for actual currency.
The usage of mobile wallets on mobiles has allowed local consumers to continue to avoid traditional banking services, allowing the unbanked to access financial services.
Uganda’s government announced plans to introduce a central bank digital currency in February (CBDC). The deployment intends to execute high-value financial transactions on a blockchain platform at a lower cost. Because of their tech-savvy behavioral habits, the government claims that the advent of such a national digital currency is a benefit for the dominating youth sector.