A protracted period of silence regarding crypto asset regulation in South Africa has finally come to an end. The deputy governor of the South African Reserve Bank (SARB), Kuben Naidoo, has confirmed that the SARB supports a series of new regulations to be implemented within 12 to 18 months.

Almost six years ago, the SARB and other regulators had no intention to regulate the industry and opted instead to observe developments in the market. The outcome of that period of observation revealed the need for the SARB to support a regulatory framework that focuses on the adherence to anti-money-laundering legislation, exchange control and the prudential standards set by the Financial Sector Conduct Authority (FSCA).

“Our view has changed, and we now regard it [crypto-currency] as a financial asset, and we hope to regulate it as a financial asset. There has been a lot of money that has flowed in, and there is a need to regulate it and bring it into the mainstream,” explained Naidoo.

How does this impact the financial sector?

Crypto assets remain largely unregulated in South Africa. The primary forces of regulation in this sector are aimed at illicit financing measures (AML) and at installing supervisory, reporting and monitoring measures to ensure market stability and participation by credible and vetted service providers (prudential regulation).

First, AML legislation will enact the Financial Action Task Force’s (FATF) AML standards locally, and will be enforced by the Financial Intelligence Center (FIC). All crypto asset service providers (CASPs), including Altify, will become defined as accountable financial institutions under the provisions of the FIC Act. Second, the SARB has indicated that it intends to apply exchange control measures on the crypto asset industry in South Africa. The SARB plans to do so on two fronts. In the first instance, by generally prohibiting juristic entities from acquiring crypto assets and, secondly, by generally deeming the mere acquisition of any crypto assets as “an export of capital” subject to the individual exchange control restrictions.

The FSCA - with the support of the SARB and FIC - plans to issue a legislative declaration capturing all crypto assets (and any financial services rendered in connection with them) as regulated financial instruments under the Financial Advisory and Intermediary Services Act (FAIS). This development will place crypto assets in the same basket as standard securities, and accordingly, CASPs will be required to secure the appropriate license category from the FSCA under FAIS. Although the timing of this declaration is uncertain, this will ultimately be beneficial for the industry and will eliminate bad actors from rendering services in respect of crypto assets.

“We will soon see the FAIS framework amended to include crypto asset service providers within its scope, which could unlock great value” - Anthony Da Ressurreicao, Investment Analyst at Altify.

What does this mean for investors?

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 risk losing their investments in such a volatile market. Compliance will be a key concern for crypto investors over the next few months, leading to the government's introduction of monitoring and control regulatory mechanisms. In addition, investors need to be cognizant of remaining tax compliant - further information on crypto tax can be found in a recent webinar between Altify and Crypto Tax Consulting in which we discussed various topics relating to crypto and tax.

The words “crypto” and “tax” can be daunting. Altify has partnered with Tax Consulting South Africa (TCSA) and launched Altify Tax - a solution enabling you to become crypto tax compliant without all the stresses of calculating your gains across loads of different exchanges and wallets. TCSA is at the forefront of regulatory tax compliance and is a leading voice in the tax regulatory and compliance space. Altify and non-Altify customers can access Altify Tax for the tax filing season via our online portal. Altify Tax provides you with everything you need to remain tax compliant.

What the future might hold

A country with a progressive regulatory framework pertaining to crypto assets can expect to see increasing capital flows into the country as investors take comfort that their assets are protected. Additionally, a regulated crypto asset industry could increase overall adoption as investors become more knowledgeable and organisations broaden their investment spectrum. American company Fidelity Investments has announced that it would provide an option to include Bitcoin (BTC) in its 401(k) US retirement investment plan. This is just the tip of the iceberg of what could be possible with regulation, and South Africa could soon follow suit giving investors the option of having crypto form part of mutual funds.

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