The Legislative Landscape of Cryptocurrencies in South Africa Prior to 2024

South Africa, over the years leading up to 2023, has exhibited a growing interest in cryptocurrencies, backed by a supportive regulatory environment. The South African Reserve Bank (SARB) confirmed its stance of neither banning nor restricting the use of cryptocurrencies, creating a favorable atmosphere for blockchain developers, entrepreneurs, and the banking sector to explore and integrate blockchain technology​

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Cryptocurrency in South Africa is legal, and individuals and businesses are allowed to use it. Various cryptocurrency exchanges and trading platforms are operational under the regulation of the Financial Sector Conduct Authority (FSCA). However, it’s important to note that cryptocurrencies are not recognized as legal tender in South Africa. The government established a framework aimed at protecting investors and curbing fraudulent activities, while fostering innovation and growth in the sector. Investors are, nonetheless, cautioned about the inherent risks, including market volatility and cybersecurity threats​

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In a pivotal development, the FSCA, in October 2022, declared crypto assets as a financial product under the Financial Advisory and Intermediary Services Act (FAIS). This declaration necessitated every cryptocurrency service provider to obtain authorization from the FAIS to operate. This move was partly in response to a 2021 report by the Financial Action Task Force (FATF), which highlighted the lack of crypto assets regulation in South Africa, particularly concerning Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) laws​

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Advertising regulations for crypto assets also evolved. The South African Advertising Regulatory Board amended its Code of Advertising Practice in January 2023 to include crypto assets. These new requirements mandated clear warnings in advertisements about the risks of capital loss and demanded comprehensibility and honesty, especially in messages circulated by social media influencers or ambassadors in the crypto space​

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The South African Revenue Service (SARS) treats cryptocurrency as an intangible asset for tax purposes. Gains from cryptocurrency transactions are taxable, with rates dependent on the individual’s income tax bracket, reaching up to 45%. There are also capital gains taxes on crypto profits, with a maximum effective rate of 18%. Taxpayers are obliged to declare all crypto-related taxable income and maintain detailed records of their transactions​

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Further solidifying the regulatory framework, the FSCA governed the operations of cryptocurrency exchanges in South Africa. Starting from a draft declaration in 2019, it laid out proposals requiring exchanges to register and comply with AML and Know-Your-Customer (KYC) requirements, maintain certain levels of capitalization, and adhere to consumer protection and risk management measures. By December 2022, an amendment to the Financial Intelligence Centre Act (FICA) defined crypto service providers as “accountable institutions,” effectively making anonymous crypto transactions illegal in South Africa​

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Additionally, from June 1 to November 20, 2023, cryptocurrency financial companies in South Africa were required to apply for a license to operate legally. This move was part of the country’s efforts to regulate the sector more stringently, tackle scams, and protect customers. Notably, non-fungible tokens (NFTs) were not covered by these regulations as they were considered more akin to traditional art investments. The FSCA’s regulations were also aimed at helping South Africa avoid being greylisted by the Financial Action Task Force due to deficiencies in its anti-terrorism financing and money laundering regimes​

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This legislative landscape prior to 2024 reflects South Africa’s balanced approach: fostering growth and innovation in the cryptocurrency sector while ensuring investor protection, legal compliance, and the prevention of financial crimes.