This development will see South Africa following suit with other countries, such as Russia, India, China, Canada, Australia, Brazil, Indonesia, Malaysia, and the Philippines, among others, which have already clarified their regulatory stances in relation to cryptocurrency.
Crypto as a Financial Product
Whereas the SARB initially settled on merely observing the developments in this market, it is evident that cryptocurrency is being widely adopted and used in South Africa, hence the SARB’s decision to now bring crypto under its regulatory ambit. According to the SARB, this will at first involve declaring cryptocurrency to be a financial product, allowing for better oversight of money laundering, tax evasion and terrorist financing activities.
Specifically, cryptocurrency will soon be regulated under the Financial Advisory and Intermediary Services (“FAIS”) Act, which is primarily aimed at protecting consumers. The FAIS Act is meant to regulate certain financial advisory and intermediary services to clients and to provide for other related incidental matters.
This means that any person providing advice or intermediary services related to crypto assets must be recognised as a financial services provider under the FAIS Act and comply with the Act’s requirements. This will include, not the least of which, RSA crypto asset platforms, as well as brokers and advisors.
As a next step, South Africans can expect to see the regulatory framework around crypto further develop with the introduction of Know-Your-Customer (“KYC”) procedures, and exchange control regulations. While the SARB will not interfere in the investment decisions made by crypto investors, it will provide “health warnings” and adequate investment protection to crypto investors who are at risk of losing their investments in such a volatile market.
What This Means for Investors
Perhaps a major relief for South African crypto investors is the fact that the SARB is not saying “no” to cross-border crypto trading and investment, but appropriate reporting will still be required in this regard. According to Naidoo, a primary aim of the incoming regulation will be to protect consumers, such as the victims of scams such as the Mirror Trading International and AfriCrypt scandals over the past two years.
It also means that compliance will be a key concern for crypto investors over the next few months leading to the introduction of monitoring and control regulatory mechanisms by government. Another concern will be in relation to tax compliance, for example, as tax evasion will be much more easily detectable with transactions falling under the purview of the SARB’s Financial Intelligence Centre (“FIC”).
What About Enforcement?
The introduction of new statutory measures to regulate cryptocurrency will surely engage the SARB and other government institutions for some time to come, and indeed well in excess of the next 18 months. However, it serves to note that this should not give rise to a false sense of comfort for non-compliant crypto investors. The aim is to ensure and enforce compliance, which will be at the top of the list for SARB and other government institutions, such as the South African Revenue Service (“SARS”).
With the regulations foreseeably covering broad ground, such as tax evasion, a further clear concern is in relation to tax compliance (or the large-scale lack thereof). The reporting of crypto transactions will be a feature in the relationship between crypto asset service providers and government, meaning that non-compliance will be much easier to spot.
This will officially mark the end of the crypto “wild west” in South Africa, and crypto investors must hope that the rug is not pulled out from under their feet again by government, as has previously been the case in relation to cross-border transactions in relation to cryptocurrency.
One thing is for certain – the next 12 to 18 months will be critical for crypto investors to ensure that they are up to date with their compliance obligations. The first-mover advantage will be critical, forming the difference between an easy transition, versus finding oneself in the crosshairs for historic non-compliance.