Digital currencies have moved from the fringe of the finance world to the mainstream over the last few years, This has led to an ever-increasing call for more scrutiny and regulation all around the world.
The ever increasing adoption of cryptocurrencies all over the world has prompted moves by the government in major countries to regulate the crypto space.
The rapid rise in crypto-trade in South Africa has come coupled with significant challenges such as a significant increase in crypto scams and frauds which has led to the loss of investor’s funds a recent example is the Africrypt case worth an estimated $3.6 billion.
South African financial regulators are anticipating the growth of crypto activity in the country thus prompting the need to introduce a regulatory framework. Though the Financial Services Conduct Authority (FSCA) is yet to enforce any regulation, the FSCA recognizes cryptocurrencies as an investment and taxable asset rather than a currency. With utmost certainty, we can expect some regulatory framework in the near future.
The new regulation is aimed at protecting the vulnerable members of society and to minimize the use of cryptocurrencies for nefarious activities such as money laundering, drug trafficking, cyber crimes etc.
According to the Intergovernmental Fintech Working Group (IFWG) position paper, here are the major things you should know about the proposed South Africa cryptocurrency regulation.
Crypto Assets as a Financial Product under the FAIS Act.
The rules will establish how trading transactions in coins such as Bitcoin, Ethereum and others should be conducted. According to this declaration,
“Any person providing advice or intermediary services related to crypto-assets must be recognised as a financial services provider under the act and must comply with the act’s requirements. This will include crypto-asset exchanges and platforms, as well as brokers and advisors.”
Crypto asset service providers will be regarded as crypto asset service providers (CASPs)
This will ensure the accountability of every crypto asset service provider making it easier and safer for the public to buy and store their cryptocurrencies.
According to the document, “any person providing advice or intermediary services related to crypto-assets must be recognized as a financial services provider under the act and must comply with the act’s requirements.”
Crypto Asset and Tax
With the FSCA already recognizing crypto as an asset, the paper also stated that one of the objectives of regulating crypto assets is to combat tax evasion and avoidance. This makes crypto-assets subject to capital gain tax.
The road ahead
The alarming increase in cryptocurrency theft and scams solidifies the need for regulations. Regulation in the South African cryptocurrency industry is necessary to protect the interest of the average investor and ensure that this new technology goes mainstream.
The implementation of these regulatory frameworks will most definitely lead to the emergence of new crypto products and services brought about by the partnership between banks and crypto companies thus increasing the cryptocurrency adoption rate.
