By choosing to continue, you are consenting to the use and functioning of this site as is in accordance with our Privacy Policy.

find an article




21 Apr 2020
BY Megan Stuart-Steer AND Jo-Paula Roman

South African crypto asset regulatory framework proposed


The Crypto Assets Regulatory Working Group (“CAR WG”) of the Intergovernmental Fintech Working Group (“IFWG”) has released its long-anticipated position paper on crypto assets. The position paper proposes that a clear regulatory policy for crypto assets be adopted in South Africa. However, it is still recommend that crypto assets not be regarded as legal tender or public money.

Members of the IFWG and CAR WG include various financial sector players, including the Financial Intelligence Centre (“FIC”), Financial Sector Conduct Authority (“FSCA”), National Credit Regulator, National Treasury, the South African Revenue Service (“SARS”) and the South African Reserve Bank (“SARB”).

Below, we look at some of the most pertinent aspects of the position paper and its recommendations.

What is a crypto asset?

The CAR WG has adopted the following definition of “crypto asset”:

“a digital representation of value that is not issued by a central bank, but is traded, transferred and stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility, and applies cryptography techniques in the underlying technology”.

According to the CAR WG, this definition includes “stable coins” (crypto assets designed to maintain a stable value relative to another asset (typically a unit of currency or commodity) or a basket of assets), but excludes digital representations of sovereign currencies.

Purpose of the position paper

The position paper recognises that crypto assets and the various activities associated with it can no longer remain outside the purview of South African regulatory authorities and recommends clear policy stances to deepen regulatory certainty on a variety of emerging use cases. This is aimed at avoiding the creation of a parallel, non-sovereign and ultimately fragmented monetary system.

Based on a functional analysis of crypto assets (having regard to the economic function of crypto assets rather than the specific technology applied or the entity involved), the CAR WG has identified the following five crypto asset use cases (the below list is non-exhaustive and subject to change based on rapid developments):

  1. purchasing/buying and/or selling;
  2. payments;
  3. capital raising through initial coin offerings;
  4. crypto asset funds and derivatives; and
  5. market support (including services such as safe custody services for crypto assets, digital wallet provisioning for crypto assets and crypto asset mining).

For the sake of brevity, not all of the above use cases are specifically discussed in this publication, although an overview of overall policy recommendations in respect of all use cases is set out below.

The IFWG and CAR WG have agreed on the following objectives for a crypto framework:

  • ensure the safety and efficiency of the financial system and financial institutions;
  • ensure consumer and investor protection, which includes financial consumer education;
  • minimise opportunities for regulatory arbitrage;
  • combat the circumvention of exchange control policy and regulations;
  • combat illegitimate cross-border financial flows (including money-laundering and the funding of terrorism);
  • combat tax evasion and impermissible tax avoidance arrangements; and
  • support financial inclusion efforts and the advancement of technological innovation in a responsible and balanced manner.

Recommendations of the CAR WG

The following “overall” recommendations have been made by the CAR WG in respect of all of the above-identified use cases:


  Recommendation 1 Entities providing crypto asset services (including crypto asset trading platforms (“CATP”), crypto asset vending machine providers and crypto asset digital wallet providers) be regarded as crypto asset service providers (a “CASP”), taking cognisance of the revised Recommendation 15 of the Financial Action Task Force (“FATF”) Recommendations on new technologies and virtual assets.
  Recommendation 2

Schedule 1 to the FIC Act, 2001 be amended by adding CASPs to the list of accountable institutions. As such, all CASPs will be required to register with the FIC as an accountable institution, and in adhering to all the relevant provisions of the FIC Act will be required to, inter alia, conduct:

  • customer identification and verification;
  • customer due diligence;
  • keep records;
  • monitor for suspicious and unusual activity on an ongoing basis;
  • report to the FIC any suspicious and unusual transactions and reporting cash transactions equal to exceeding ZAR25 000.
CASPs will be required to implement Recommendation 16 (“the travel rule”) of the FATF Recommendations, requiring that an originating CASP should obtain, and hold, required and accurate originator information as well as required and accurate beneficiary information of the crypto asset transaction, submit this information to the beneficiary CASP or another obliged entity, and make this information available on request to the appropriate regulatory and/or law enforcement authorities.
  Recommendation 3 The FIC should assume the supervisory role and duties to ensure compliance by those CASP business entities that would become accountable institutions with the requirements of the FIC Act.
The FIC may impose administrative penalties where there is non-compliance.
  Recommendation 4 The CAR WG should continue monitoring crypto assets and define the specific focus of a crypto assets monitoring programme, including: monitoring overall market capitalisation, and cross-border flows of crypto asset transactions.
  Recommendation 5 Crypto assets remain without legal tender status andshould not be recognised as electronic money.
  Recommendation 6 Crypto assets should not be allowed for the conduct of money settlements in financial market infrastructures, such as the “South African Multiple Option Settlement” or “SAMOS” system (which is the real-time gross settlement system of South Africa).
All existing financial market infrastructures (regardless of whether the financial market infrastructure is systemically important or not) should not interface with crypto assets in the absence of a regulatory framework that sets out how crypto assets can interface with market infrastructures.
The National Payment System Department of the SARB, the Prudential Authority and the FSCA should consider the appropriate policy stance on the interaction of financial market infrastructures with crypto assets.
  Recommendation 7 The Prudential Authority should consider the appropriate supervisory and regulatory approach for the treatment of crypto assets, including the reporting on prudential entities’ direct exposures to crypto assets and the treatment of the prudential and accounting practices for crypto assets.
  Recommendation 8 The National Treasury Tax Policy Unit, alongside SARS, should consider the adoption of a uniform definition of crypto assets within the South African regulatory framework, if required and appropriate. The existing definition adopted by SARS refers to “crypto currencies”, not to “crypto assets”.
The existing tax structure for the treatment of crypto assets within the Income Tax Act, 1962 and the Value-Added Tax Act, 1991 should be supported.


Specifically in respect of the purchasing/buying and/or selling use case, the following exchange control related recommendations have been made:


  Recommendation 1 The Financial Surveillance Department of the SARB should assume the supervisory and regulatory responsibility for the monitoring of illegitimate cross-border financial flows in respect of crypto asset services.
  Recommendation 2

The Financial Surveillance Department of the SARB should request the Minister of Finance to amend Exchange Control Regulation 10(4) to include crypto assets in the definition of “capital” for the purposes of Exchange Control Regulation 10(1)(c).

  Recommendation 3 The Financial Surveillance Department of the SARB should amend the Authorised Dealer Manual to enable authorised dealers to facilitate and report cross-border transactions in respect of crypto assets (including the transfer of fiat currency for the purpose of buying crypto assets across borders by a CATP).
A specific balance of payments category for the reporting of crypto asset transactions should be created, which should be a mandatory obligation.
  Recommendation 4 The Financial Surveillance Department of the SARB should expand the Currency and Exchanges Manual for Authorised Dealers in foreign exchange with limited authority (“ADLA Manual”) framework to allow the appointment of CATPs.
CATPs should be authorised and supervised in terms of requirements similar to the current ADLA Manual requirements.
  Recommendation 5 The Financial Surveillance Department of the SARB should explicitly allow individuals, through an amendment of the Exchange Control Regulations, to purchase crypto assets within the single discretionary allowance (currently, ZAR1-million) and the foreign capital allowance (currently, ZAR10-million).
  Recommendation 6 A new dispensation should be created under the exchange control framework to allow CATPs (licensed as above) to source or buy crypto assets offshore for the purpose of selling to the local market.
  Recommendation 7 CATPs should be required to report crypto asset transactions to the Financial Surveillance Department of the SARB.
The trigger event of reporting should be specified by the Financial Surveillance Department of the SARB.
  Recommendation 8 Exemption should be provided for under Section G of the Authorised Dealer Manual (which relates to securities control) as a market maker or arbitrageur for crypto assets, as appointed in Recommendation 4 above.


Interestingly, in respect of the payments use case, because the ability to make payments using crypto assets is currently not provided for under existing regulatory frameworks, it recommended that:

  • The National Payment System Act, 1998 be reviewed for the inclusion of regulation relating to crypto assets for domestic payment purposes and/or the regulation of payment services associated with crypto assets.
  • In the interim period, payments using crypto assets will be subjected to a regulatory sandbox approach, where the use of crypto assets for domestic payments may be assessed in a controlled environment to determine the consequences of potential adoption.

Opportunity for public comment

Stakeholders and interested parties are invited to forward their comments on the position paper by 15 May 2020 to the IFWG email address.

According to the position paper, the contents and recommendations contained in the document will be subject to a consultative process; whereafter, the South African regulatory authorities (in conjunction with National Treasury) will consider all input received, and the preferred policy position will be communicated through a final position paper. No anticipated deadline or timeframe for the release of a final position paper has been announced.


Although the release of the position paper is much welcomed and certainly a step in a positive direction to creating regulatory certainty, until the adoption of the recommendations in the position paper or until such time as the existing South African regulatory framework is amended to specifically regulate crypto assets in some other manner (whichever is first), regulatory bodies remain hampered in their ability to provide certainty regarding the parameters for permissible transactions involving crypto assets. Many innovative business opportunities may therefore continue to suffer delays in the South African market. 

Reviewed by Peter Dachs, head of ENSafrica’s tax department.

Megan McCormack
Senior Associate | Tax
+27 82 382 8963

Jo-Paula Roman
Associate | Tax
+27 82 381 2069