Fintech Law & Cryptocurrency Lawyers | south africa

There is no blockchain-specific law in operation in South Africa, but depending on the field/sector within which the technology is deployed, the regulations relevant to that sector will apply.

• Financial Intelligence Centre Act, 2001 (FICA);
• Financial Advisory and Intermediary Services Act, 2002 (FAIS); and
• Conduct of Financial Institutions (COFI) Bill (expected to come into effect in 2023)

This refers to taxes levied on gains made in cryptocurrency transactions. The South African Revenue Services (SARS) currently taxes individuals on their cryptocurrency investments in the form of capital gains tax. We expect further developments in this area in the short-term in respect of reforms to the application of the foreign exchange controls on the export and import of cryptocurrency to and from South Africa.  There is also an indication of possible impending investment-related taxes on cryptocurrency funds. 

Fintech (from the terms “financial” and “technology”) covers the latest technological innovations in particularly the financial services sector including blockchain, cryptocurrency, insurtech, regtech, P2P, open banking, crowdfunding, mobile money etc. Fintech law requires an up-to-date knowledge of the rapidly changing law impacting this sector across a wide-range of regulatory frameworks and an understanding of the applicable technology. Due to the rapid pace of innovation in this sector, some fintech areas are unregulated or due to be regulated soon and therefore a general understanding of best practices and other jurisdictional approaches is also required with a pragmatic approach to advice.

Fintech products, services and partnerships require a multi-disciplinary team to advise on the applicable law:

• Regulation of financial services and products
• Regulation of payment services, lending and banking 
• Anti-money laundering laws
• Companies Act (particularly relating to “public offers”).
• Investment funds regulations
• Insurance law
• Pension Funds 
• Tax and Exchange Control
• Data protection and data privacy

Furthermore, we note that the law on tax of cryptocurrency is evolving. In South Africa, cryptocurrency is treated as both income (taxed on the revenue account as “gross income”) or taxed as capital gains tax depending on whether a receipt is revenue or capital in nature. Taxpayers are also entitled to claim expenses associated with crypto assets accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade. Base cost adjustments can also be made if the receipt is treated as CGT.

Yes. Businesses that provide crypto asset services in South Africa — including crypto exchanges, brokers, and certain custody or advisory services — generally need to be licensed as a Financial Services Provider (FSP) under FAIS, following the FSCA’s classification of crypto assets as a financial product. This brought crypto asset service providers (CASPs) into the same regulatory framework as other financial intermediaries, with the accompanying fit and proper, disclosure, and conduct requirements that come with FSP licensing.

SARS treats crypto assets as assets of an intangible nature for tax purposes, not as currency — meaning gains or losses from crypto transactions are generally subject to normal income tax or capital gains tax rules, depending on whether the taxpayer is trading or investing. SARS has stated that normal tax principles apply: the specific facts (frequency of transactions, intention, and whether the activity amounts to a trade) determine which tax treatment applies to a given taxpayer, and taxpayers remain responsible for declaring crypto-related income or gains even where no third party reports it to SARS on their behalf.

Fintech regulation in South Africa spans the range of legal and regulatory requirements that apply to technology-driven financial products and services  –  including licensing under FAIS for financial advice and intermediary services, payment system authorisation through the South African Reserve Bank, consumer protection and disclosure obligations, data protection under POPIA, and, increasingly, the specific rules now applying to crypto asset service providers. Because fintech businesses often combine several regulated activities in one product (payments, lending, and advice, for example), a fintech business frequently needs to map its offering against more than one regulatory regime rather than assuming a single licence covers everything it does.

Businesses that provide payment services  –  operating a payment system, issuing e-money, or facilitating payment processing on behalf of others  –  generally need authorisation from the South African Reserve Bank under the National Payment System Act, or need to operate through, or in partnership with, an already-authorised participant in the national payment system. The specific authorisation route and requirements depend on exactly what payment function the business performs, and the SARB has been actively updating its regulatory approach to accommodate newer payment service models.

This sits at the intersection of crypto regulation and South Africa’s exchange control rules, and it’s an area where the position has been actively evolving. South African exchange control regulations govern the movement of capital out of the country generally, and their application to crypto assets specifically  –  including questions around individual offshore investment allowances and reporting requirements  –  has been the subject of ongoing regulatory attention rather than a single settled answer. Businesses or individuals looking to move meaningful value in or out of South Africa via crypto assets should treat this as a genuine compliance question requiring current, specific advice, not a general assumption either way.