It has long been clear that regulation in South Africa was inevitable, regardless of this being contradictory to the philosophy of most of those involved in the crypto asset sector. This concern has now materialised, with the Intergovernmental Fintech Working Group (IFWG) having published their new position paper last week.

The IFWG, being a working group comprising members from the Financial Intelligence Centre, Financial Sector Conduct Authority, National Treasury, SARB and SARS, among others, outlines 25 recommendations for the regulation of crypto assets in South Africa.

According to the IFWG, of the regulations proposed, some of these are purportedly “already underway” while others “will take much longer to implement”. The regulations provide an outline of the different categories of Crypto Asset Service Providers (CASPs), which will be subject to regulation under the Financial Intelligence Centre Act (FICA). Further, amongst other proposed measures, crypto assets will be considered a financial product under the Financial Advisory and Intermediary Services (FAIS) Act.

The position paper, although initially thought to have been a shot in the dark, appears to be a well-considered document. However, it remains to be seen what the role of the Competition Commission and National Credit Regulator will foreseeably play, as this has not been made clear. It remains to be seen whether their involvement would become more relevant in view of the further prospective legislative changes yet to be introduced.

Overall, the position paper indicates a broadening of the related regulatory compliance requirements and will make for a much stricter operating environment moving forward. In other words, the proposals in the position paper will lead to much more visibility and transparency from a regulatory perspective – not only just for CASPs but also for the crypto investors themselves. Quite importantly, it potentially further provides an additional avenue for audit by SARS, based on suspected non-compliance or non-disclosure, either historically or currently.

For compliant crypto investors and those familiar with the relevant requirements, this should not be a cause for concern. Remaining within the confines of the law is merely a matter of ensuring that you have regard for the relevant tax and exchange control implications, obligations and limitations. For those who are either historically or currently non-compliant, the days of crypto assets being the “wild west” of regulation are coming to an end and there is no limit on the extent of a historic SARS audit.

Ensuring optimal (historic, current and prospective) compliance is currently the only way to invest in crypto assets legitimately and sustainably, and is already crucially necessary to remain in SARS’ good books. Where this is only raised by the crypto investor at a later stage, or is otherwise picked up by SARS, upon audit, the relief available to the crypto investor is severely restricted. Crypto investors should, therefore, see the writing on the wall and seek to get their affairs in order as soon as possible.