The future of cryptocurrency regulation in South Africa

On 11 June 2021, the Intergovernmental Fintech Working Group (IFWG), through its Crypto Assets Regulatory Working Group, published its position paper on the regulation of crypto assets in South Africa, with 25 recommendations.

The regulation of crypto assets is focused on the governance of the activities of crypto assets services and in particular crypto asset service providers (CASPs). These include trading platforms, intermediaries involved in the buying and selling of crypto assets, the providers of custodial wallets and the providers of investment funds or derivatives with underlying crypto assets.

The core of these recommendations is the regulation of crypto assets in three key areas, namely: (1) anti-money laundering (AML)/combating the financing of terrorism (CFT), (2) exchange control (Excon) and (3) application of financial services regulations.

In terms of an AML/CFT framework, a CASP would be regarded as an “accountable institution” under the Financial Intelligence Centre Act, 2001 (FICA) and would, accordingly,  have to register with the Financial Intelligence Centre (FIC). All CASPs would therefore have AML/CFT obligations under FICA, such as customer verification, reporting of suspicious transactions and reporting of transactions above the specified threshold (currently from R25,000.00).

For Excon, cross-border financial flows of crypto-assets should be monitored by the Financial Surveillance Department of the South African Reserve Bank (SARB) in the same way as fiat currency. This would require the Minister of Finance to amend the current Excon regulations to bring crypto-assets within the purview of Excon regulation.

In order to be regulated under the financial services regulation,      crypto-assets shall be declared “financial products”  under the Financial Advisory and Intermediary Services Act, 2002 (FAIS), as an interim measure. This means that CASPs that provide “advice” and “intermediary” services in respect of crypto assets will have to register as financial services providers (FSPs) and obtain FAIS licenses with the Financial Sector Conduct Authority (FSCA).  The draft amendments to the FAIS Act, to provide for crypto assets as “financial products”, have already been circulated by the FSCA for public comment. However, the IFWG views this as a short-term measure because the scope of activities that can be regulated under FAIS is limited. The IFWG has proposed that, as a medium-term measure, all financial services in respect of crypto-assets should be included in the Financial Sector Regulation Act, 2017, and subject to the new Conduct of Financial Institutions Bill.

It is not certain when any of these proposed recommendations will come into effect, but CASPs can already take steps to better prepare their business and operations for the impending regulations. Please contact us should you wish to find out more about the IFWG’s policy paper or for proactive suggestions on how to prepare for impending regulation.

Kerry Kopke

Kerry has a BBusSci LLB (cum laude) and MCom (Financial Management) and was admitted to the New York bar in 2008 and as an attorney in South Africa in 2012. She currently lectures a module fin the Economics Analysis of Financial Markets at the University of Cape Town. She has worked as an associate at Davis, Polk & Wardwell LLP in New York, at Bowman Gilfillan and at Arthur Cox in Dublin. Kerry also has substantial in-house corporate experience having worked for a number of large asset managers in South Africa. Kerry has extended her scope of work to include public financial management consulting with governmental departments and multilateral organizations. She joined Caveat in 2017 and specialises in financial services law, investment funds and public financial management.

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