THE MILD, MILD WEST: A horse named Crypto

THE MILD, MILD WEST: A horse named Crypto

Space: the final frontier. Not too long ago, the expanse of central North America was seen as such a frontier line. In time, railroads, telephone wires and highways sketched their lines across its unspoiled canvas, setting the stage for future generations to draw poor analogies about the connectivity of Western society from a computer down in Southern Africa. After getting acquainted with our place amongst the stars, we set our sights outwards for new analogies to butcher.

The American frontier. The Wild West. It immediately conjures up imagery of saloon shoot-outs, train robberies and cowboys. Perhaps a result of indulging in too many Westerns, but nevertheless a consequence of doting on the subject. Harsh, untamed and seemingly lawless, the Wild West was, well, wild.

With cleaver in hand, let’s compare this to South Africa’s crypto asset regulations. This analogy has done the rounds quite a bit and I’m definitely not breaking new ground in following suit. Its aptness remains evident (new territories; unexplored opportunities; the dangers that insufficient infrastructure and ill-willing individuals may pose – you get the picture) and doesn’t really need these explanators to drive the point home. But seeing as there are new developments happening in crypto here in South Africa, it may just be excusable to give this analogy one more spin.

South Africa has been cautious to try and tame crypto for quite some time now. Over several years, its nature and mannerisms were scrutinised and we have finally, it would seem, come to a conclusion – albeit being in draft format and only hinting at things to come: late in November of 2020, a draft declaration delineating crypto assets as a financial product was issued. Public comments closed near the end of January 2021. The wheels are in motion.

Backing the right horse: Assets and Currency

The draft declaration provides for a “crypto asset” definition as well, which emphasises South Africa’s continued aversion to seeing crypto assets as crypto “currency”. Although the average consumer would view these as synonymous terms and reference them interchangeably, there’s meticulous reasoning behind viewing crypto assets as crypto assets rather than crypto currencies. Although it may just be semantics for some, considering crypto assets as a currency is not something South Africa seems to be ready for yet.

Divergence exists the world over as to what legal status crypto assets should be given, and pinning a “currency” tail to something has more implications than its colloquial usefulness where it isn’t recognised as readily exchangeable. So although South Africa isn’t requiring your local saloon to accept Bitcoin in lieu of ZAR just yet, it’s at least come to terms with the fact that crypto may be here to stay.

It should be noted that the declaration is most likely only the tip of the iceberg of crypto regulations in South Africa. The press release following the draft declaration states that “[t]he draft Declaration is merely intended to be an interim step in mitigating certain immediate risks in the crypto assets environment pending the outcome of broader developments currently taking place through the [Crypto Asset Regulatory Working Group] which will inform future policy interventions to be implemented across a variety of regulators and laws.

Blazing new trails with trusty horseshoes: Financial products and FAIS

Slotting crypto assets into the “financial product” definition cannot be said to be surprising – there’s already massive differences between the different financial products that are currently being combed with the same brush. In addition, when considering Conduct of Financial Institutions Bill’s (COFI) expansion on the financial product definition, this approach in a regulatory sphere that is progressing towards streamlining regulatory authorities, is almost expected.

While some are strong advocates of cryptocurrency being used as a form of, well, currency, others treat crypto assets in a way that can somewhat be compared to trading in stocks. Whether these positions are two sides of the same coin or not (pun intended), the treatment of crypto assets, at least more recently, has resulted in extreme fluctuations in large amounts of value. With a two-day window allowing for double-digit percentage fluctuations, one can hardly say that changes are negligible.

It is within this tumultuous, new and exciting yet confusing environment that consumers are at risk of running into trouble. Only days after comments on the draft regulations were closed, the FSCA issued a press release stating that it is receiving a large number of complaints from consumers aggrieved with losing savings to scams premised in crypto assets or through crypto investments they did not fully understand.

The statement goes on to say that “[c]rypto-related investments are not regulated by the FSCA or any other body in South Africa. As a result, if something goes wrong, you’re unlikely to get your money back and will have no recourse against anyone.” It is this exact position that is sought to be changed by including crypto assets within the FSCA’s ambit by denoting it as a financial product.

Accordingly, South Africa has taken an approach that, in comparison to the current position, will essentially herald the FSCA’s arrival as sheriff to the scene. FAIS is a battle-hardened piece of sectoral legislation, so having crypto assets included in its ambit is a big step forward for consumer protection. And with promising prospects of further regulation on the horizon, the corralling of crypto assets into the financial product pen is just the start. Putting the reigns on crypto assets through directly involving the FSCA may be just the thing that is needed to bring some order to the wild.

FINANCIAL SECTOR COMPLIANCE: Providing financial services to a changing world (Part 1)

FINANCIAL SECTOR COMPLIANCE: Providing financial services to a changing world (Part 1)

– Part 1 –

Stating that technologic advancements are both directly and indirectly shaping the course of history may sound a bit melodramatic – but simultaneously hard to argue with. Following up this proclamation with averring industry specific foundational shifts, such as the emergence of fintech bringing about a dedicated intergovernmental working group to regulate and foster responsible innovation will seem less exaggerated but equally indisputable.

The Intergovernmental Fintech Working Group (IFWG) has been around since 2016, ensuring that financial services providers (FSPs) are given a bit of oversight in a fintech context – by the corps d’elite of the financial regulatory sphere.

The IFWG, comprised of the Financial Intelligence Centre (FIC), Financial Sector Conduct Authority (FSCA), the South African Reserve Bank (SARB), the National Credit Regulator (NCR), the South African Revenue Services (SARS) and the National Treasury, monitors such innovations in order to help ensure the continued efficient functioning of financial markets, financial stability and protecting consumers’ interests.

In 2019, the IFWG hosted various workshops, with themes such as artificial intelligence, central bank issued digital currencies, cybersecurity and digital identity. With the promise of an inter-regulator innovation hub being implemented during the first half of 2020, the technological developments in the financial environment seems to be on an exponential growth trajectory in strict adherence to Kurzweil’s The Law of Accelerating Returns.

Whether one considers the financial services industry, the broader financial sector or any other related topic, the fact that our world is being rocked by technology, with its effects spilling into all industries of commerce, becomes inescapable. Consequently, it is the responsibility of policymakers to try and re-orientate the economy with gyroscopic accuracy; and the responsibility for financial services providers to test these corrective measures by seizing the opportunities these technological advancements offer. This results in the checked growth of the financial sector through product innovation. Sandboxing financial products serves as a great example. It’s the stuff love stories are made of.

“This Financial Sector Compliance Series of articles will endeavour to make new territory seem eerily familiar…”

If you’re not currently contemplating the beta-testing of AI supported financial advice or lobbying Bitcoin 2.0 to the SARB, you may be wondering if any of this is applicable to a more “traditional” FSP business model.

The short answer is yes, and the answer to the foreseeable “Why?” is a simple matter of cause and effect. Up to this point, only changes ensuing from technological developments were considered, but the need for sectoral adjustments can be brought about through a barrage of other factors and events. Economic crises, such as the 2008 financial crisis prompting South Africa’s adoption of the twin peaks regulatory model, serve as stark reminders that our regulatory systems have been put to the test and have buckled to some degree. But these weaknesses serve to highlight focus areas for the next round of regulatory adjustments, possibly bringing about changes to processes already ingrained into your business. Cause and effect.

Such changes encompass both specific prescriptions and general tenets as to what is expected from financial services providers, and can provide for consolidating the regulatory ambit of the financial services industry by expanding the definition of financial products (for example, the provision of credit – which in turn leads to other considerations such as these we wrote about previously). These are not small-scale changes and can with no exaggeration be termed as “fundamental financial sector reform” – no hyperbole intended.

Although this should be taken with the necessary accompanying seriousness and may seem daunting regardless of your level of preparedness, the underlying rationale for this reform should serve to (at least attempt to) ease some concern. At its centre is financial stability and market conduct. Each repeal, amendment or enactment associated with this reorganisation in some way serves to promote these Twin Peak objectives.

Keeping the bigger picture in mind will hopefully assist in not brooding too much over whether your disclosure obligations originate from FAIS or COFI, as well as explain why there’s now an Insurance Act in addition to the Short-Term Insurance and Long-Term Insurance Acts.

Questions may yet abound – and quite understandably so. This Financial Sector Compliance Series of articles will endeavour to make new territory seem eerily familiar by covering existing standard compliance obligations of FSPs, such as information disclosures in terms of FAIS’s General Code of Conduct; explore what changes can be expected; and how the world of financial regulation might continue to evolve.

We are currently finding ourselves amidst another global crises: not one brought about in any similar way as the 2008 financial crises forming the foundation of various countries’ Twin Peaks reform, but one borne from something much closer to home. Our health and the human life it supports is not only tied to the continued functioning of the economy, but to society and every other aspect of life as we know it. You will be hard-pressed to find a facet of society that has not been directly impacted by COVID-19. We have seen economic loss willingly undertaken by governments around the world in an effort to protect its citizens. This crisis will likely be the centre of similar debates that did the rounds after the 2008 financial crises, but with a very real human element at the heart of it.

If you have any financial sector legislative compliance queries – please contact us for more information.

Credit where credit is due

Credit where credit is due

Have you ever thought about just how many laws there are in South Africa? After excluding the common law and criminal procedure, there’s still more legislation within our justice system than you can shake a gavel at. And as is almost inevitable when dealing with this amount of paper (although mostly digitalised nowadays), problems preventing harmonious interpretations of legislative provisions across this myriad of statutes become rife.

For example, the inclusion of the provision of “credit” as a financial product in the Financial Sector Regulation Act, 9 of 2017 (“FSRA“) added to the list of financial products we were used to referring to in the Financial Advisory and Intermediary Services Act, 37 of 2002 (“FAIS“). Not only this, but the regulation of credit was minding its own business in the National Credit Act, 34 of 2005 (“NCA“) until the FSRA rocked the boat.

This is not immediately problematic – a lot of other financial products are also regulated by separate legislation. And within this sphere of commercial law, we’re pretty comfortable with what is meant by financial products and financial services.

But it becomes interesting when the new law introduced – in this case the FSRA – may impact the interpretation of the existing law – the NCA.  Considering the NCA reference to a “financial services account” (without definition) alongside the recent inclusion of “credit” in the FSRA, we’re suddenly playing cricket with a golf club and the crowd is getting pumped up for a conversion kick. It’s all very confusing, but it might just make some sense when we consult the rulebook.

A matter of perspective:

By classifying credit as a financial product (barring a few exceptions), any financial service in relation to the provision of credit would constitute a financial service in terms of the FSRA. Thus, if you were to say that the rendering of an intermediary service for the provision of credit constitutes a financial service you would probably be correct. But if you were to say that it does not constitute the rendering of a financial service, you would probably also be correct. Contradictory? Not necessarily when you are provided with the requisite context.

The FSRA has not repealed FAIS, and both acts still operate concurrently. For FSRA application, a financial service will include a financial service as it relates to the provision of credit. However, where FAIS regulates financial services, services related to the provision of credit will fall outside this definition and will not find application.

In short, it’s like Schrödinger’s Credit – the provision of credit is both a financial product and not a financial product until you open the box and see whether FAIS or the FSRA was accompanying it inside.

However, what would happen if one were to switch up the variables? By replacing “Is this a financial service?” with “Why is this a financial service?”, you’re substituting a yes-or-no question with an essay request. This is what a consideration of the NCA now does.

A matter of interpretation:

Nestled away in section 101(3) of the NCA, one would come across this seemingly innocent provision –

If a credit facility is attached to a financial services account, or is maintained in association with such an account, any service charge in terms of that account—

(a) if that charge would not have been levied if there were no credit facility attached to the account, is subject to the prescribed maximum contemplated in subsection (1) (c) ; and

(b) otherwise, is exempt from the prescribed maximum contemplated in subsection (1) (c).

However, looks can be deceiving. This provision could potentially have significant consequences. A service charge for a financial services account that is contingent on a credit facility will be subject to a prescribed maximum. But, if this charge would have been levied independently – i.e. even if no credit facility was attached to it, you’re free to exceed this threshold.

Credit facilities are synonymous with the provision of credit – it is after all a defined class of credit agreements under the NCA. What is meant by a “financial services account” under the NCA, is open for debate, however. The term is not defined in the NCA. The term “financial services” however, is defined in both FAIS and the FSRA – each of which would have a very different effect here.

Is there an opportunity to see financial services account as an account relating to the provision of credit? If so, could this mean that mean that charging services fees above the maximum for the linked account will be allowed? This will be on the basis of the financial services account being tied to a credit facility, where that provision of credit would have had its own service fee if entered into separately.

Clearly a lot rides on what is meant by a financial services account. Not being defined in any of the NCA, FAIS or FSRA, speculation as to its meaning can lead one to some interesting questions. Is it a new financial product? Was it accidentally left undefined? And what is the true meaning of life anyway?

It could also mean something much simpler. Like an account held with a financial services provider. Or it could mean an account linked to a financial service. Or linked to a financial product. Although some have the opinion that this was intended to refer to an overdraft bank account facility, would it be unreasonable to conclude that other offerings could also fit this description of a financial services account?

And a matter of timing:

Before you get those credit bundling business ideas running through your head again, let us consider one last thing. As already alluded to above, legislative intention is crucial when there’s no real objective answer in front of us. Whether financial services accounts were meant to be construed as an overdraft facility or accounts relating to financial services in the wider sense of the meaning, it will still be subject to legislative intention and interpretation. At the time of drafting the NCA, the FSRA was well and truly not on anyone’s mind. Legislators don’t keep time machines in their offices (we’re assuming…).

So, looking at the different definitions (or lack of definitions) in the different legislation, this topic will certainly continue to be an interesting subject for debate and interpretation.

Decrypting crypto: The anticipation for South Africa’s crypto-regulations continues

Decrypting crypto: The anticipation for South Africa’s crypto-regulations continues

With cryptocurrency regulations seemingly just around the corner for South Africa,[1] the extent of their practical ramifications can be speculated over quite a bit. According to a recent survey, South African internet users topped the rankings for cryptocurrency ownership worldwide.[2] Already accounting for 10.7% of all local internet users,[3] this number could climb if regulations serve to alleviate trust and security concerns.[4] Furthermore, South Africa has consistently topped global rankings as the country with the highest internet searches for Bitcoin.[5] But what is the catalyst behind this popularity?

Arguably, the growth in demand cannot be ascribed to one particular factor. Events such as the firing of Pravin Gordhan as South Africa’s finance minister and the downgrade of South Africa’s local currency debt to that of junk status were seen as mentionable contributors to the surge in new users trading Bitcoin in 2017, constituting a 671% rise from January to November on eToro.[6] More recently, cryptocurrencies have received an increase in popularity amidst growing political and economic uncertainty.[7]

Contrary to what a Hollywood-portrayed high school would have you believe, there are downsides to popularity. Hypothetical risks in an unregulated market include:

  • a decreased demand for fiat currency, which in turn poses problems for the South African Reserve Bank’s (SARB) monetary supply control;
  • a financial stability risk if market capitalisation reaches the $1 trillion threshold (which, although constituting roughly 1.5% of the total global market capitalisation of the S&P 500 Index, is not entirely far fetched when one considers the 3 200% growth rate in market capitalisation in 2017),[8] which figure is seen as the psychological threshold that, when crossed, will lead to increased regulatory scrutiny by financial institutions and legislatures around the globe; and
  • potential threats to the national payment system.[9]

Due to its meteoric rise in popularity, regulations to address consumer protection become paramount.[10]

What will the scope of these regulations be, and how will they affect South Africa and its prevalent participation in the cryptocurrency market? It might still be too early to say for certain. However, the SARB has suggested a phased approach to regulation,[11] with the first phase constituting a registration process for persons offering crypto-asset services and arguably aligns nicely with the current regulatory overhaul for financial services.[12] The second phase contemplates a review of existing regulatory frameworks to determine whether new requirements need to be introduced or existing requirements need to be amended.

And lastly, the third phase contemplates an assessment of the effectiveness of the regulatory actions.[13] With the first phase expected to be implemented in the first quarter of this year,[14] interesting times lie ahead for both consumers and service providers of cryptocurrency.

[1] Ruggieri N “South African Reserve Bank Begins To Plan Crypto Regulations” (18-01-2019). EHTNews. Available at: (accessed on 21-02-2019).

[2] Gogo J “Survey ranks South Africa top for cryptocurrency ownership” (20-02-2019). Available at: (accessed 21-02-2019); “Digital 2019: Essential insights into how people around the world use the internet, mobile devices, social media, and e-commerce” (31-01-2019). Wearesocial; Hootsuite. 205.

[3] Supra n2. 205.

[4] Rangogo T “Half of richer, online South Africans want to buy cryptocurrencies – here’s what’s holding them back” (06-11-2018) Business Insider South Africa. Available at: (accessed on 20-02-2019).

[5] Avan-Nomayo Osato “Cryptocurrency continues to thrive in South Africa” (07-07-2018). Bitcoinist. Available at: (accessed on 20-02-2019).

[6] “This graph shows just how popular Bitcoin is in South Africa” (05-01-2018). Business Tech. Available at: (accessed on 20-02-2019).

[7] O’Brien K “Cryptocurrency remains popular in South Africa, but scams and questions still loom” (05-08-2018). Bitcoinist. Available at: (accessed on 20-02-2019). 

[8] “Consulation paper on policy proposals for crypto assets” Intergovernmental Fintech Working Group: Crypto Assets Regulatory Working Group. 13-14.

[9] Jenkinson G “Report by South Africa’s Reserve Bank Makes Strides Toward Crypto Clarity in the Country” (22-01-2019). Cointelegraph. Available at: (accessed 20-02-2019).

[10] Rattue R “Cryptocurrency regulation essential for everyone” (15-02-2019). FAnews. Available at: (accessed on 21-02-2019).

[11] Vermeulen J “South Africa’s plan to monitor Bitcoin exchanges” (20-02-2019). MyBroadband. Available at: (accessed on 21-02-2019).

[12] Supra n10.

[13] Omarjee L “February deadline for public comment on cryptocurrency regulation” (27-01-2019). Fin24. Available at: (accessed on 21-02-2019).

[14] Supra n13.