South Africa has stepped up its digital asset licensing and regulations in recent years. However, regulators have overlooked one critical factor that local exchanges say could unlock accelerated growth in the burgeoning industry.
In South Africa, digital assets are not classified as onshore or offshore assets and exist in regulatory limbo. Local government bonds, shares listed on local exchanges, real estate and retirement funds are all designated as onshore assets. On the other hand, foreign bank accounts and stocks listed in foreign exchanges are classified as offshore assets.
Classifying digital assets as either on- or offshore would determine how freely South Africans can invest. Local laws cap investment in offshore assets for retail investors at R1 million ($54,500). Investors can bump the limit to $545,000 if they get clearance from the taxman. However, there are no caps for onshore assets.
According to Marius Reitz, Africa’s general manager at Luno exchange, this regulatory ambiguity is hindering the sector’s growth, especially for institutional investors with millions of dollars to invest. While he called on regulators to offer guidance, he appealed to them to consider classifying digital assets as onshore assets to unlock massive growth in the sector.
His colleague, Paul Harker, who heads the exchange’s legal and corporate strategy globally, concurs.
“Internationally, cryptocurrencies are now just another recognised asset class to invest in along with stocks, government bonds and fiat currencies. In the current constrained fiscal reality, our government has little room to manoeuvre. Pro-growth and forward-looking decisions are essential,” he told local outlet My Broadband.
While digital assets are currently unclassified, transferring them from a local platform to an international exchange could land investors in trouble. In a 2021 guidance document, the South African Reserve Bank (SARB) said that this kind of transfer amounts to a violation of the Exchange Control Regulation. Culprits face five years in prison, a fine of up to $13,600, or both.
This risk of violation has kept many institutional investors at bay, and it’s reflected in market figures recently released by the country’s Financial Sector Conduct Authority (FSCA). In its report, the FSCA revealed that retail investors account for 71% of digital asset activity in the country.
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