Fintech Law & Cryptocurrency Law
We assist businesses in all areas of Fintech and Cryptocurrency Law
Because financial technology (fintech) is relatively new and has developed faster than legislative processes, and because the nuances of blockchain applications are varied, Fintech and Crypto Law covers a broad range of regulations, many of which were formulated before its existence. As such, it covers laws and regulations in the fields of financial services, ITC, exchange control and tax, and involves keeping abreast of these regulations as they change to adapt to it.
Blockchain technology itself is advancing in major financial services institutions such as banks and insurance companies, and the regulatory implications cross over a broad area of law.
In addition, crypto assets are deemed “financial products” under the applicable financial services regulations, imposing potential licensing obligations on those who work in the cryptocurrency investment space.
Caveat’s Fintech and Crypto Law team is multi-disciplinary, and includes financial services, tax and technology law experts, which enables us to provide appropriate advice to cryptocurrency brokers, advisors, exchanges and platforms in this developing landscape.
We apply financial services expertise to a solid understanding of the technology to advise in this exciting and evolving area of law.
- Kerry Kopke, Caveat Panel Member
Fintech Law & Regulations
The Fintech legal sector has seen an increase of activity in recent years spurred on by the disruptive nature of blockchain technology, distributed ledgers, smart contracts and the use of artificial intelligence and data analytics. Regulators recognise the potential of the fintech innovations and are responding to them by regulating this sector. Our experience includes advising a number of leading financial institutions on fintech legal and regulatory issues and advising technology companies and start-ups across the sector.
Cryptocurrency Law & Regulations
Cryptocurrency Law and Regulations are rapidly evolving in South Africa and globally. With the recent regulatory changes, crypto asset service providers will have to be regarded as accountable institutions under the Financial Intelligence Centre Act, 2001 (“FICA”) and accordingly will have statutory cash reporting and monitoring obligations. In addition, crypto assets will be declared “financial products” under the Financial Advisory and Intermediary Services Act, 2002 (“FAIS”) requiring crypto asset service providers to register for a financial services provider license under the FAIS Act. With the new Conduct of Financial Institutions Bill which was expected to come into effect in 2023, the expectation is that crypto assets will potentially have their own set of regulations which will apply exclusively to them.
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 crypto tax law 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.
Legal Advice for Cryptocurrency Brokers, Advisors, Exchanges and Fintech Providers
The financial technology law and regulatory landscape is constantly evolving and could present first-mover fintech opportunities for those who keep up-to-date with these developments. We also expect major regulatory developments for crypto assets in the short term and accordingly we advise crypto asset service providers to seek legal advice on charting their compliance strategy with these new regulations.
Caveat is able to assist fintech providers with input on the following:
- Decentralised Finance (DeFi);
- Decentralised Autonomous Organisations (DAOs);
- Non Fungible Tokens (NFTs)
- Financial Services Regulation;
- Initial Coin Offerings (ICOs);
- Payment services;
- RegTech; and
- Smart contracts.
In the fintech law and policy space, we also provide regulatory advice, legal opinions and drafting of agreements in compliance with the regulatory framework currently applicable.
Frequently asked questions on Fintech & Cryptocurrency Law
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.
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Last week, the Financial Sector Conduct Authority (FSCA) officially declared