Cryptocurrency is always making headlines and in the 2022 Budget Review published recently, the treasury announced a crackdown on cryptocurrency miners, which the treasury labelled as “environmentally harmful” and stablecoins. In addition, South Africa’s regulatory authorities are developing several interventions, that are expected to be finalised this year.
Regulations that are on the table
Based on the paper that South Africa’s Intergovernmental Fintech Working Group (IFWG) published in June 2021, which detailed a co-ordinated and phased approach to regulating crypto assets, the following interventions are underway:
- Crypto asset service providers will need to comply with the Financial Intelligence Centre Act (FICA) in order to address concerns around money laundering and terror risk financing.
- Crypto assets will be declared a finance product under the Financial Advisory and Intermediary Services Act. This will ensure that any person giving advice or intermediary services will need to be registered as a financial services provider. This will include crypto-asset exchanges and platforms and brokers and advisors.
- The monitoring and reporting of crypto asset transactions to comply with the Exchange Control Regulations of 1961.
These interventions are all expected to be finalised during 2022 and will tighten the controls that the South African Reserve Bank and Financial Surveillance department introduced last year, which stipulated:
- That it is illegal to buy cryptocurrency from an overseas provider using a debit or credit card
- That it is a criminal offence to transfer cryptocurrency from a local exchange, wallet prover or self-hosted wallet to an overseas exchange
Not all Stablecoins are stable
Stablecoins are becoming increasingly popular because they are backed by real assets like the rand or the US dollar, rather than the very volatile crypto assets like Bitcoin and Ethereum. One of the new additions to the SA crypto market is ZARP, a stablecoin backed 1:1 by the rand.
While stablecoins are backed by stable assets, they cannot easily be used for everyday purchases, and in the 2022 budget review, it was announced that IFWG will publish a paper to address risks posed by stablecoins. It’s important for investors to note that not all stablecoins are 100 percent price stable. Their value is dependent on their underlying assets and can only be truly stable if they are 100% backed by cash.
Crypto and SARS
SARS has sought to clarify the treatment of crypto assets and has said that it will trace crypto transactions through third-party service providers who submit financial data to SARS and that taxpayers must declare all crypto-related taxable income in the tax year in which it is received or accrued. For expert advice as to the tax principles that must be applied to your crypto assets, speak to our tax experts today