This article was co-authored by: Kristen de Wet, Candidate Attorney
The deputy governor of the South African Reserve Bank (SARB) has confirmed that the trading of cryptocurrency in South Africa will be regulated within the next 12 to 18 months from 12 July 2022.
The use of cryptocurrency in South Africa is prevalent and recent investigations by SARB have highlighted non-compliance with existing regulations, leading to tax evasion, money laundering and terrorist financing activities. This has resulted from the decentralised nature of cryptocurrencies.
The SARB does not intend to regulate cryptocurrency as a currency, but rather as a financial asset. Regulating cryptocurrency will legitimise the industry and ensure that anti-money laundering legislation and exchange control regulations, amongst others, are adhered to.
Anticipated regulatory framework
The regulation of cryptocurrency will follow a phased approach. According to the SARB, cryptocurrency will be declared as a financial product in terms of the Financial Advisory and Intermediary Services Act, 2002 (FAIS). This will provide the Financial Sector Conduct Authority with regulatory oversight over the cryptocurrency market. Once cryptocurrency is deemed a financial product, providers of advice or intermediary services related to crypto-assets (such as crypto-asset platforms, associated brokers and advisors) will be required to obtain the relevant FAIS authorisation.
Schedule 1 of the Financial Intelligence Centre Act, 2001 will include crypto-asset service providers as an accountable institution. Crypto-asset service providers will be required to register as accountable institutions with the Financial Intelligence Centre (FIC).
It is anticipated that crypto-asset services will be included as a licensing activity under the eventual Conduct of the Financial Institutions Act (COFI). The pooling of crypto-assets for distribution may be regarded as an alternative investment fund, included within the relevant licensing activity under COFI. To align with the implementation of the Twin Peaks Model, crypto-asset services will be included as a financial service in the Financial Sector Regulation Act, 2017.
The SARB aims to develop a regulatory framework for crypto exchanges to provide for crypto listing. There remains uncertainty regarding the implementation of such a regulatory framework. However, SARB has confirmed that it will entail know-your-customer requirements and, where applicable, submission of Suspicious Transaction Reports in terms of FICA to the FIC.
Implications for investors
Investors will be free to trade cryptocurrencies locally, provided the relevant authorisations have been obtained. Cross-border cryptocurrency trading and investments would be permitted, provided that the relevant exchange control regulations are complied with and every transaction is reported to the SARB.
With the SARB intention of declaring cryptocurrency as a financial product, investors and providers of cryptocurrency and related services should be aware of the possible regularisation and regulation of the market.