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crypto-regulation

Are you ready for imminent crypto regulation in South Africa?

A long period of silence on cryptocurrency regulation in South Africa has finally been broken. South African Reserve Bank (SARB) deputy governor Kuben Naidoo has now confirmed that new regulations are set to be implemented within the next 12 to 18 months.

Read: SARB is taking a slow and steady approach to crypto regulation

This development will see South Africa following suit with other countries, such as Russia, India, China, Canada, Australia, Brazil, Indonesia, Malaysia and the Philippines, which have clarified their regulatory stances in relation to cryptocurrency.

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 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 FAIS Act. This means that any person providing advice or intermediary services related to crypto assets must be recognised as an FSP under the FAIS Act and comply with the Act’s requirements. This will include crypto asset platforms, as well as brokers and advisers.

As a next step, South Africans can expect to see the regulatory framework around crypto further develop with the introduction of Know-Your-Customer procedures, and exchange control regulations.

Although 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 the 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 Financial Intelligence Centre.

What about enforcement?

The introduction of new statutory measures to regulate cryptocurrency will engage the SARB and other government institutions for some time to come, and indeed well in excess of the next 18 months. However, 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 the SARB and other government institutions, such as the South African Revenue Service.

With the regulations foreseeably covering broad ground, such as tax evasion, a further 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 the government, which means 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 the government, as has previously been the case in relation to cross-border transactions in relation to cryptocurrency.

One thing is 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.

This article was written by Ruan Stander, crypto asset taxation specialist, and Thomas Lobban, the head of crypto asset taxation at Tax Consulting SA.

Disclaimer: The views expressed in this article are those of the writers and are not necessarily shared by Moonstone Information Refinery or its sister companies.

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