Virtually Everything | Series 2, Episode 6 | Crypto in Focus: South Africa's Regulatory Journey

In this episode of Virtually Everything, hosts Lucy and Vyasna are joined by Nicole Britton, a legal director in the Corporate & Commercial Regulatory Team in our Johannesburg office. Together, they explore the evolving regulatory landscape for crypto assets in South Africa, a region experiencing rapid development and growing global interest in this emerging field.

Nicole opens the discussion by providing an overview of South Africa’s regulatory journey, starting with its initial position paper on crypto assets in 2014. She highlights the alignment of South African regulations with the FATF’s global guidelines, albeit with a local twist, as the country prefers the terms "crypto assets" and "crypto asset service providers" (CASPs) over the FATF’s "virtual assets" and "virtual asset service providers." This distinction, while seemingly semantic, is reflective of the broader regulatory nuances that characterise South Africa’s approach. Nicole further elaborates on the establishment of the Intergovernmental FinTech Working Group (IFWG) and its Crypto Assets Regulatory Working Group, both of which have played a pivotal role in shaping South Africa’s phased regulatory framework.

The conversation delves into significant milestones, including the 2022 classification of crypto assets as financial products under the Financial Advisory and Intermediary Services (FASE) Act. This move represents a crucial step in regulating the sector, addressing consumer risks, and providing oversight for many crypto-related activities. However, Nicole notes that certain activities, such as crypto mining, node operations, and NFT-related services, remain outside the regulatory umbrella, reflecting the challenge of striking a balance between fostering innovation and mitigating risks.

Nicole also provides an insightful look at South Africa’s "Twin Peaks" model of financial regulation, introduced in 2018. Under this framework, the Financial Sector Conduct Authority (FSCA) supervises market conduct, while the Prudential Authority focuses on the soundness of institutions like banks and insurers. The FSCA has taken a leading role in regulating CASPs, and as of June 2024, it has licensed 138 providers. This number highlights the growing interest in South Africa’s crypto market, although the process has not been without challenges. Licensing backlogs, lengthy processing times, and difficulties in meeting fit-and-proper requirements—such as operational capability and compliance with anti-money laundering (AML) obligations—pose significant barriers for applicants.

The episode also touches on the enforcement landscape. While enforcement actions have been limited thus far, Nicole explains that the FATF’s grey-listing of South Africa has spurred regulators to adopt a more aggressive approach to ensure compliance. The FSCA has established a dedicated investigation team to address unlicensed activities, while failures to comply with AML obligations can result in severe penalties, including substantial fines and imprisonment. With FATF deadlines approaching in 2025, South Africa is expected to intensify its supervisory efforts and impose stricter sanctions to demonstrate regulatory effectiveness.

Looking ahead, Nicole discusses the anticipated Conduct of Financial Institutions (COFI) Act, which aims to create a comprehensive and bespoke regulatory framework for financial institutions, including those operating in the crypto space. Currently a bill, COFI seeks to harmonise and expand the regulatory scope of activities not fully addressed under the FASE Act, while improving consumer protections and market conduct. This development, alongside the refinement of existing frameworks, reflects South Africa’s commitment to regulating the sector without stifling innovation—a delicate balance that policymakers must navigate.

To conclude the episode, Nicole identifies "crypto assets" as the buzzword defining South Africa’s virtual asset landscape. She highlights the nuanced definitions of crypto assets under different laws, such as the FASE Act and the Financial Intelligence Centre Act, which illustrate the complexities of regulatory harmonisation. These discrepancies, Nicole suggests, point to the need for a more unified and tailored approach to addressing the unique challenges of the crypto sector.

This engaging episode sheds light on South Africa’s progress in developing a regulatory framework for crypto assets, highlighting both its achievements and the road ahead. With valuable insights into the opportunities and challenges in this dynamic industry, the discussion serves as an essential resource for businesses navigating South Africa’s evolving regulatory environment. 

This podcast forms part of the Virtually Everything podcast series. To find out more about the topics discussed in the series, please visit our dedicated Digital Assets and Blockchain page.