The regulation of cryptocurrencies in the context of South Africa’s financial sector.
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Getting a global society to agree something has value and can be used as a currency without government support and without a physical form is one of the most significant accomplishments in monetary history.1 This research critically analyses a significant yet, uncertain area of law in South Africa - the regulation of cryptocurrencies. Cryptocurrencies are digital representations of value supported by cryptography and function within a global computerised ledger system called the blockchain. Cryptocurrencies are multifaceted with its use extending beyond an alternative payment method. Cryptocurrencies are not issued or controlled by a central regulatory authority, hence, they are not considered to be legal tender in South Africa. Currently, as at September 2019, cryptocurrencies are not directly regulated in South Africa. South African financial regulators, particularly the South African Reserve Bank and the South African National Treasury caution users about the risks associated with cryptocurrencies and vigorously indicate that citizens have no recourse to South African authorities. On the other hand, the South African Revenue Service indicates that citizens must declare their cryptocurrency gains and losses as part of their taxable income. It intends on regulating cryptocurrencies within the existing tax law framework by amending certain provisions to include cryptocurrencies and its use thereof. This research has shown that this position lacks coherency because it does not address the regulatory and legal uncertainty heralded by the emergence of cryptocurrencies. Significantly, cryptocurrency intermediaries possess similarities to traditional financial intermediaries. Thus, the applicability of existing financial legislation to cryptocurrencies and its use thereof is uncertain. This research serves as an initiative to reduce this uncertainty by analysing South Africa’s financial legislative framework, with the hope that South African financial regulators perform a similar task. Consequently, this unregulated environment increases the risk for cryptocurrencies to be used as vehicles for financial crime, consumer risks, and risks to the overall financial sector. As a result, this research proposes that an effective legal and regulatory framework must be implemented for cryptocurrencies and its use thereof in South Africa. In considering the regulatory approaches of international jurisdictions such as the United States, Australia and Japan, this research ultimately proposes that South African financial regulators adopt a functional approach to cryptocurrency regulation. This will entail a unified regulatory approach consisting of a blend of one or more of the following approaches: the development of an industry regulator over the cryptocurrency industry supported by the amendment of existing financial legislation under the aegis of the Twin Peaks model such as the Conduct of Financial Institutions Bill, 2018 and financial services laws, the issuing of bespoke legislation and imposing consumer protection obligations on cryptocurrency intermediaries by amending the Consumer Protection Act 68 of 2008.