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South Africa Considering Regulatory Framework For Crypto Assets

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South African financial regulators are considering a regulatory framework for cryptocurrencies such as Bitcoin. This was revealed in a document titled "Consultation Paper on Policy Proposals for Crypto Assets" released by the regulators.

The regulators include South African Reserve Bank (SARB), South African Revenue Service (SARS), the Financial Intelligence Centre (FIC), Financial Sector Conduct Authority (FSCA) and the National Treasury (NT).

The regulators are of the view that regulatory action should not be delayed until the most appropriate regulatory approach has become clear, but to rather act and amend as innovation evolves.

According to them, South Africa does not currently intend to ban the buying, selling or holding of crypto assets, or to ban crypto assets for payments. However, because crypto assets are not recognized as a currency, customers may be exposed to harm in an unregulated environment.

The South African authorities had in 2014 issued an initial public statement on crypto assets, warning the public about the risks associated with it and advised users to take extreme caution, as there were no regulation or legal protection in place.

Cryptocurrency economy has grown significantly in South Africa last year. The growing interest in cryptos led to South Africa to form an Intergovernmental Fintech Working Group (IFWG) to develop a common understanding among regulators and policymakers of fintech developments, as well as policy and regulatory implications for the financial sector and economy.

Later, a joint working group was formed under the auspices of the IFWG to specifically review the position on crypto assets in early 2018. The consultation paper is an outcome of this working group that provides background and context for the review and provides the scope of the crypto activities assessed.

The paper highlights the benefits and risks of the related activities, reviews the approaches by other jurisdictions, and presents recommendations for dealing with crypto assets from a South African perspective.

The working group primarily analyzed two crypto assets use cases or scenarios to come out with the contents in this paper - buying and selling crypto assets, and making payments with crypto assets.

Members of the public have been requested to provide comments on the document by February 15, 2019. The input received will also be considered while creating a regulatory framework for the manner in which crypto assets will be managed within South Africa.

In April, SARS announced it would continue to apply normal income tax rules to cryptocurrencies, and put onus on taxpayers to declare all cryptocurrency-related taxable income. As such, cryptocurrencies are not regarded by SARS as a currency for income tax purposes or Capital Gains Tax (CGT). Instead, cryptocurrencies are regarded by SARS as assets of an intangible nature.

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