Regulatory Guidance Unit

Regulatory Guidance Unit

We exist to…

Demystify regulation

Financial sector policies and regulations are complex. The Regulatory Guidance Unit exists to help market innovators resolve specific questions regarding the policy landscape and regulatory requirements.
Do you have a question on fintech or innovation-related financial sector regulation?
We do this by providing a central point of entry for market innovators to submit enquiries related to fintech and innovation-oriented policies and regulations. Responses from the Regulatory Guidance Unit will integrate perspectives from relevant financial sector regulators, eliminating the need to contact multiple regulators. Guidance provided is non-binding and innovators are encouraged to seek formal legal advice on complex enquiries.

FAQs

Issuing a mobile money wallet involves the collection or accumulation of money from customers and providing a digital/electronic means to access and use the money in a convenient way (i.e. using a mobile device). When a firm collects money from customers with an agreement to repay the money as and when required by the customer (as a regular feature of its business), the activity is seen as deposit taking. A company that is involved in deposit taking is considered a bank and therefore require a banking licence to perform this type of activity (as outlined in the Banks Act, Act no.94 of 1990).

However, a firm that does not intend on performing deposit taking, but only providing technical services, where the funds are not held, are allowed to provide payment related services. Section 52 of the Banks Act allows for other entities, referred to as non-banks, to enter into arrangements with banks that may allow them to offer payment-related services in partnership with a bank. Non-banks that provide these payment-related services are considered system operators or third-party payment service providers in terms of Directives 1 and 2 of 2007. Specifically, system operators provide technical services (where no funds are held) by processing or routing payment instructions between banks, whereas third party payment providers receive payments from the public for payments that are due, such as a bill payment for electricity. In the delivery of such payment services where funds are held, the funds are due to a third party and therefore not regarded as deposit taking and do not require a banking license.

System operators require authorisation from the Payments Association of South Africa (PASA) in terms of the entry and participation criteria as defined in the Directive 2 of 2007 for System Operators, whilst third party payment providers are not authorised, but must be registered at PASA by the bank (sponsoring/ acquiring bank) introducing them to the payment system.

For additional information, please reference:

To learn more, please check out our three-minute “Regs Explained 01: Licenses for mobile money wallet solutions in South Africa” video with South African Reserve Bank Senior Payment System Analyst Ayn du Bazane here https://www.youtube.com/watch?v=kJZxSoVvk4E.

The Intergovernmental Fintech Working Group is in the process of drafting a revised policy on crypto assets and crypto asset related activities. The IFWG recently published a draft position paper, which is under revision after a period of public comment. The final paper will set the policy position for South Africa on crypto assets which will lead to the development of a regulatory regime. For additional information, please reference:
IFWG CAR Working Group Position Paper on Crypto Assets: https://www.ifwg.co.za/wp-content/uploads/IFWG_CAR_WG-Position_Paper_on_Crypto_Assets.pdf
In terms of the exchange control rules, non-residents who have introduced crypto assets to South Africa for sale locally and who want to transfer the sale proceeds abroad will be unable to do so, since no foreign exchange was introduced into South Africa through the financial system. The applicable exchange control policy is outlined in section G. (C) (i) of the Currency and Exchanges Manual for Authorised Dealers. South African residents are allowed to transfer funds abroad for specific purposes, but no scheme currently exists for the transfer of the sale proceeds of crypto assets. When South African residents transfer funds abroad they are required to sign a declaration that the funds are being used for the purpose indicated to the Authorised Dealer (bank). Therefore, any other purpose stated on the relative declaration will have the effect of the South African resident making a false declaration which, of course, has legal implications. If you have any further queries, specifically in respect of exchange controls and crypto assets, you can submit a request to SARB-ADLA@resbank.co.za. Additionally, the Intergovernmental Fintech Working Group is in the process of developing a revised policy on crypto assets and crypto asset related activities. The IFWG recently published a draft position paper, which is under revision after a period of public comment. The final paper will set the policy position for South Africa on crypto assets which will lead to the development of a regulatory regime. For additional information, please reference:

While there is no existing regulation that is specific to crowdfunding, companies looking to engage in this type of service are required to comply with the Financial Advisory and Intermediary Services (FAIS) Act. A Category 1, Category 2, or Category 3 license would need to be obtained under the FAIS Act depending on the underlying financial instrument (e.g., equities, etc.) and the nature of crowdfunding services provided.

Additional resources that may be helpful include:

In addition to a FAIS license, if credit will be offered over the crowdfunding platform,
companies will need to register as a credit provider under Section 40, 41, and regulation 4 of the National Credit Amendment Act, 19 of 2014.

Additional resources that may be helpful include:

It should be noted that each crowdfunding case will be reviewed on a case-by-case basis.

Offering of credit is regulated whenever parties (a credit provider and a consumer) conclude an agreement in terms of which payment of an amount owed by the consumer to the credit provider is deferred, and any charge, fee or interest is payable to the credit provider in respect of the agreement or the amount deferred.

Therefore, the National Credit Act regulates transactions where:

  1. a credit provider advances money, or sells goods or services on credit, and
  2. defers the repayment of the advanced money or the costs of the goods or services; and
  3. charges interest, fee or any charge for the deferment or under that agreement.

Once a transaction meets the above requirements, it will be regulated by the National Credit Act, and a credit provider under such transactions must be registered with the National Credit Regulator (NCR), and furthermore comply with the National Credit Act, including conducting affordability assessments.

If a transaction does not meet the three requirements of a credit agreement outlined above then such a transaction will not be regarded as a credit agreement and will fall outside the provisions of the National Credit Act, with no obligation on the credit provider to register with the NCR or to conduct an affordability assessment.

Currently, in terms of the existing exchange control regulations, only individuals may purchase crypto assets abroad through the utilisation of their single discretionary allowance (SDA) of R1 million, and/or individual foreign capital allowance (FCA) of R10 million with a Tax Clearance Certificate, per calendar year. This is explained in greater detail in the Currency and Exchanges Manual for Authorised Dealers, which a local Authorised Dealer in foreign exchange (i.e. a commercial bank) will be able to assist individuals with. Business entities are currently not allowed to purchase crypto assets abroad or from foreign crypto asset trading platforms/exchanges.

Please refer to Recommendations 11, 15 and 16 of the draft IFWG Crypto Assets Position Paper (https://www.ifwg.co.za/wp-content/uploads/IFWG_CAR_WG-Position_Paper_on_Crypto_Assets.pdf), which articulates the IFWG’s proposed treatment going forward. Should these recommendations be implemented, the Financial Surveillance Department of the SARB will assume the regulatory and supervisory responsibility for the monitoring of the purchasing and selling of crypto assets in South Africa as well as illicit cross-border flows of value using crypto assets. In future, Crypto Asset Trading Platforms (CATPs), under licence from the Financial Surveillance Department of the SARB, will be able to conduct the offshore purchasing of crypto assets for selling to the local market. Business entities that are not licensed as a CATP by the Financial Surveillance Department of the SARB will not be authorised to purchase crypto assets from abroad. The movement of crypto assets abroad will only be allowed to occur through vetted and approved CATPs or crypto asset service providers (CASPs) with a (still to be determined) limit on the allowable values leaving South Africa.

The design and implementation of the CATP authorisation and reporting framework is therefore work in progress and still in the development phase. As a result, business entities cannot presently be authorised as CATPs until the framework has been completed and approved.

The legislative and regulatory framework in South Africa is activity-based. This means that if an entity is performing a specific activity which is regulated in terms of a specific legislative framework, the entity must be duly licensed, regulated and supervised in terms of the relevant legislative framework. The responsibility to determine the activity/activities in which an entity engages (or intends to engage in future), and to concomitantly assess whether their business model falls within the requirements of a specific legal framework, vests wholly with an entity. While the Regulatory Guidance Unit therefore cannot identify or determine the activities an entity is performing (or intends to perform in future), it can provide an opinion on specific questions regarding the policy landscape and regulatory requirements once an entity has identified the activity/activities in which it engages (or intends to engage in future).
Neither the IFWG nor the Regulatory Guidance Unit endorses any activities or confirms whether an entity’s existing or intended future operations falls within the legislative framework.

Neither the IFWG nor the Regulatory Guidance Unit endorses any activities or confirms an entity’s legitimacy, business model and/or product/service offering. Specifically with regard to crypto assets, please refer to the SARB’s 2014 Position Paper on Virtual Currencies (available here), which highlights that there is currently no regulatory protection for consumers engaging in crypto asset-related activities, and that consumers engaging in such activities are therefore doing so at their own risk

Crypto asset arbitrage trading FAQs

Under the current Exchange Control Regulations administered by the Financial Surveillance Department (FinSurv) of the South African Reserve Bank (SARB), individuals are allowed to utilise their Single Discretionary Allowance (SDA) of up to R1 million per annum, and/or individual foreign capital allowance (FCA) of up to R10 million with a Tax Compliance Status (TCS) PIN, to send funds offshore for investment purposes. Although the current Exchange Control Regulations do not explicitly allow the sending of funds abroad specifically for purchasing crypto assets, individuals are currently not expressly prohibited from doing so. On the other hand, the current Exchange Control Regulations explicitly stipulate the categories for which business may send funds abroad, and currently crypto assets are not recognised as such an asset. As a result, legal entities other than natural persons are not currently allowed to send funds abroad for the purpose of purchasing crypto assets.

Please refer to Recommendations 11, 15 and 16 of the draft IFWG Crypto Assets Position Paper (available here), which articulates the IFWG’s proposed treatment going forward. Should these recommendations be implemented, FinSurv will assume the regulatory and supervisory responsibility for the monitoring of the purchasing and selling of crypto assets in South Africa as well as illicit cross-border flows of value using crypto assets. In future, Crypto Asset Trading Platforms (CATPs), under approval from FinSurv, will be able to conduct the offshore purchasing of crypto assets for selling to the local market. Business entities that are not appointed as a CATP by FinSurv will not be authorised to purchase crypto assets from abroad. The movement of crypto assets abroad will only be allowed to occur through vetted and approved CATPs or crypto asset service providers (CASPs) with a (still to be determined) limit on the allowable values leaving South Africa.

The design and implementation of the CATP authorisation and reporting framework is therefore work in progress and still in the development phase. As a result, business entities cannot presently be authorised as CATPs until the framework has been completed and approved.

In terms of the current Exchange Control Regulations, neither individuals nor legal entities are currently allowed to purchase crypto assets in South Africa and send these assets abroad. An individual may, however, exchange Rand for foreign currency in South Africa under his/her R1 million SDA and/or R10 million FCA via a local Authorised Dealer in foreign exchange (i.e. a commercial bank) for the purpose of investing the funds offshore. Should the individual choose to purchase crypto assets abroad, he/she may then send the foreign currency abroad via the formal banking system from the local Authorised Dealer (i.e. a commercial bank) to the relevant individual’s account with a foreign-domiciled CASP, and then purchase crypto assets from this foreign CASP. The crypto assets acquired in this manner may then be introduced into South Africa. It should be noted that FinSurv does not currently approve applications received from individuals to expropriate more than R10 million per calendar year, and that any crypto assets introduced into South Africa are not regarded as a repatriation of an individual’s SDA or FCA.

It should further be noted that South African Revenue Service (SARS) will not approve requests for TCS certificates and/or TCS PINs in instances where there is current proof that the funds for which a TCS PIN is being requested have already been invested abroad. SARS does therefore not issue multiple TCS PINs for the same capital, and the re-using of TCS PINs for the same capital is therefore not allowed. This implies that should a TCS PIN be issued by SARS in amount of e.g., R100 000, only up to R100 000 may be transferred in terms of the relevant TCS PIN and an individual cannot use the TCS PIN again to transfer additional funds.

In terms of the process described above, there are four parties involved when an individual intends to send funds abroad, namely:

  • the individual intending to send funds abroad;
  • the Authorised Dealer (i.e. commercial bank);
  • the SARB’s Financial Surveillance Department (FinSurv); and
  • the South African Revenue Service (SARS).
These four parties’ respective roles in the process are illustrated sequentially as follows:
The individual submits a request his/her nominated Authorised Dealer (i.e. commercial bank) to use Rand to purchase foreign currency.

The Authorised Dealer performs the necessary verifications on the customer and execute the instruction from the individual to purchase foreign currency (using Rand) for the specified amount.

The individual instructs the Authorised Dealer to send the foreign currency to his/her nominated counterparty abroad.
The Authorised Dealer will send the funds abroad as requested and report it to FinSurv via the FinSurv Reporting System. The onus is on the individual to ensure he/she does not exceed his/her SDA as per the declaration signed on the Integrated form. If an individual has reached his/her R1 million annual SDA, the following process is followed:

The individual or his/her duly authorised representative will request a Tax Compliance Status (TCS) PIN from SARS, confirming that the requesting individual’s tax affairs are in order and that he/she has a valid TCS certificate. Once the TCS PIN is presented by the taxpayer to the Authorised Dealer, the Authorised Dealer will verify the taxpayer’s tax compliance status via SARS eFiling and retain proof of the taxpayer’s tax compliance status at the time of the transaction. If the taxpayer is found to be non-compliant in terms of his/her tax compliance status, the Authorised Dealer cannot proceed and the taxpayer must resolve his/her non-compliance status with SARS first. Accordingly, if the individual does not have a TCS PIN, funds in excess of a client’s SDA will not be allowed to be transferred abroad.

Should the individual have a valid TCS certificate, the Authorised Dealer will request a TCS PIN from SARS.
The application process commences with SARS where the taxpayer would apply for a TCS PIN from SARS. By issuing the TCS PIN, SARS is essentially indicating that it is comfortable that the taxpayer is tax compliant and that SARS has no objection to the funds being transferred, meaning that the approval of the funds to be transferred offshore thus resides with the Authorised Dealer for applications up to R10 million, and with FinSurv for applications over R10 million. SARS will consider the client’s request and, if approved, issue the TCS PIN to the client, which the Authorised Dealer will use to verify the tax compliance status of the client, effect the instruction and send the funds abroad.
The repatriation of value to South Africa specifically through crypto assets is currently not acknowledged as a repatriation of an individual’s SDA or FCA as such transactions are currently not reportable on the FinSurv Reporting System. Crypto assets are also not regarded as legal tender in South Africa. The funds-in-funds-out principle does therefore not apply to crypto assets, with the implication being that if an individual repatriates crypto assets to South Africa, converts same to Rand, and wishes to retransfer the proceeds abroad, the individual will be required to obtain a new TCS PIN from SARS (for transactions in terms of the FCA).

SARS will only issue a TCS PIN for an individual taxpayer to access his/her FCA when SARS is satisfied that the taxpayer is tax compliant. The issued TCS PIN is valid for 12 months from the date of issue (and is dependent on the taxpayer’s future compliance status), and the TCS PIN is issued for the specific amount requested by the taxpayer. The taxpayer will present the TCS PIN to the Authorised Dealer (although often the Authorised Dealer or tax practitioner will request this on the individual’s behalf), who will then approve the transfer of that specific amount stated on the TCS PIN or transfers up to that specific amount. Should the taxpayer want to externalise additional funds from South Africa, the taxpayer or his/her duly authorised representative is then required to apply to SARS again to be issued with a new TCS PIN that indicates the new amount.

The generally accepted practice by which SARS decides on issuing a TCS PIN for FCA-related matters is by considering the individual’s liquid asset base, where SARS will validate the source and availability of funds. There is comprehensive SARS guidance on the source of funds (available here). In addition, there are no specified limits or points at which applications for obtaining new TCS PINs from SARS are set. However, please note that submitting a new application before the value stipulated on a TCS PIN is exhausted (or indeed close to being exhausted) will increase SARS’s overall turnaround times, especially in a space where SARS is already experiencing severe processing capacity constraints.

In short, no. Section B.2(B)(i)(d) of the Currency and Exchanges Manual for Authorised Dealers (Authorised Dealer Manual), states the following:

“In terms of the SARS Tax Compliance Status (TCS) system, a TCS PIN letter will be issued to the taxpayer that will contain the tax number and TCS PIN. Authorised Dealers must use the TCS PIN to verify the taxpayer’s tax compliance status via SARS eFiling prior to effecting any transfers. Authorised Dealers must ensure that the amount to be transferred does not exceed the amount approved by SARS. Authorised Dealers should note that the TCS PIN can expire and should the Authorised Dealer find that the TCS PIN has indeed expired, then the Authorised Dealer must insist on a new TCS PIN to verify the taxpayer’s tax compliance status.”

Accordingly, note that the wording “Authorised Dealers must ensure that the amount to be transferred does not exceed the amount approved by SARS” implies that should a TCS PIN be issued by SARS in the amount of e.g. R500 000, only an amount of up to R500 000 may be transferred in terms of the relevant TCS PIN. An individual will therefore only be able to transfer up to R500 000 with the TCS PIN and cannot use the TCS PIN again to transfer additional funds using the same TCS PIN. However, should an individual only transfer, e.g. R100 000 of the R500 000 for which he/she received approval, he/she may use the remaining R400 000 (i.e. the balance) by using the same TCS PIN within 12 months from the date of issuance of the TCS PIN (i.e. the TCS PIN is valid for 12 months from the date of issue). Furthermore, section B.2(B)(ii)(a) of the Authorised Dealer Manual states the following:

“The Rand equivalent of income earned abroad and own foreign capital introduced (with the exceptions of that stated below) into South Africa on or after 1997-07-01 by private individuals resident in South Africa, may be retransferred abroad (excluding any growth on the funds introduced), provided that the Authorised Dealer concerned is satisfied that the income and/or capital had previously been converted to Rand, by viewing documentary evidence confirming the amounts involved.”

Funds transferred abroad under an individual’s FCA, accompanied by a TCS PIN, and repatriated to South Africa in foreign currency, may therefore be retransferred abroad without an additional TCS PIN. This creates a ‘funds-in-funds-out’ principle in terms of South Africa’s current exchange control policy. As mentioned above, the repatriation of value to South Africa specifically through crypto assets is currently not acknowledged as a repatriation of an individual’s FCA as such transactions are currently not reportable on the FinSurv Reporting System. Crypto assets are also not regarded as legal tender in South Africa. The funds-in-funds-out principle does therefore not apply to crypto assets, with the implication being that if an individual repatriates crypto assets to South Africa, convert same to Rand, and wish to retransfer the proceeds abroad, the individual will be required to obtain a new TCS PIN from SARS.

Additional FAQs on the SARS Tax Compliance Status (TCS) PIN

The TCS PIN is simply a means to confirm a taxpayer’s tax compliance status and the result verification will indicate the amount the taxpayer wants to transfer offshore by SARS.
Once issued, the TCS PIN will indicate the amount approved by SARS that may be transferred abroad, subject to the taxpayer’s TCS status being equal to “Compliant”. Once the Authorised Dealer or AD (i.e. a South African commercial bank) has approved the request and the amount is transferred, the taxpayer is required to apply again to SARS to be issued with a TCS PIN for the new amount the taxpayer is applying for.