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The FSRA has not repealed FAIS, and both acts still operate concurrently.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: https://www.ethnews.com/south-african-reserve-bank-begins-to-plan-crypto-regulations (accessed on 21-02-2019).

[2] Gogo J “Survey ranks South Africa top for cryptocurrency ownership” (20-02-2019). Bitcoin.com. Available at: https://news.bitcoin.com/survey-ranks-south-africa-top-for-cryptocurrency-ownership/ (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: https://www.businessinsider.co.za/half-of-richer-online-south-africans-want-to-buy-cryptocurrencies-heres-whats-holding-them-back-2018-11 (accessed on 20-02-2019).

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

[6] “This graph shows just how popular Bitcoin is in South Africa” (05-01-2018). Business Tech. Available at: https://businesstech.co.za/news/banking/218099/this-graph-shows-just-how-popular-bitcoin-is-in-south-africa/ (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: https://bitcoinist.com/cryptocurrency-remains-popular-south-africa-scams-questions-still-loom/ (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:  https://cointelegraph.com/news/south-africa-is-making-strides-toward-crypto-clarity-with-the-reserve-banks-latest-report (accessed 20-02-2019).

[10] Rattue R “Cryptocurrency regulation essential for everyone” (15-02-2019). FAnews. Available at: https://www.fanews.co.za/article/cryptocurrencies/1407/general/1408/cryptocurrency-regulation-essential-for-everyone/26192 (accessed on 21-02-2019).

[11] Vermeulen J “South Africa’s plan to monitor Bitcoin exchanges” (20-02-2019). MyBroadband. Available at: https://mybroadband.co.za/news/cryptocurrency/296454-south-africas-plan-to-monitor-bitcoin-exchanges.html (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: https://www.fin24.com/Economy/february-deadline-for-public-comment-on-cryptocurrency-regulation-20190127 (accessed on 21-02-2019).

[14] Supra n13.