Regulatory Guidance Unit

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Regulatory Guidance Unit

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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?
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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:

The Intergovernmental Fintech Working Group is in the process of drafting a revised policy on crypto assets and crypto asset related activities.

The IFWG aims to publish a draft policy paper for public comment during the first quarter of 2020. 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:
Consultation paper on policy proposals for crypto assets http://www.treasury.gov.za/comm_media/press/2019/CAR%20WG%20Consultation%20paper%20on%20crypto%20assets_final.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 aims to publish a draft policy paper for public comment during the first quarter of 2020. 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.