Population: 59 million

Wealth in domestic bank deposits: 300 billion USD (September 2023)

Offshore expatriated wealth: 28.8 billion USD

Main offshore banking locations: Switzerland

Number of individual brokerage accounts: N/A

Crypto adoption (% of population): 6 million (10%)

TLDR

South Africa has relaxed exchange controls and taken a progressive approach towards cryptocurrency regulation in recent years to attract foreign investment. Investors can readily access both the Johannesburg Stock Exchange and crypto trading platforms like Luno. While the country still imposes some capital flow restrictions, the South African Reserve Bank plans to modernize to a more open system by 2025. Qualified investor rules only exist for hedge funds, with no accredited investor tests for other asset classes. Overall, South Africa presents an increasingly welcoming environment for global investors and cross-border financial services.

Exchange controls

South Africa has historically maintained strict exchange controls to prevent capital flight during periods of economic and political turmoil. The controls were first introduced in 1961 under the Currency and Exchanges Act, and significantly tightened in 1985 when South Africa faced debt default and economic sanctions because of apartheid.

Under the current system regulated by the South African Reserve Bank (SARB), South African residents face limits on how much money they can transfer abroad per calendar year. The Single Discretionary Allowance allows residents over 18 to transfer up to R1 million ($62,500) offshore annually for any legal personal purposes like travel, gifts, donations, or maintenance payments. The Foreign Investment Allowance allows residents over 18 to invest up to R10 million ($625,000) per year in permissible foreign assets like shares, bonds, and property after obtaining a tax clearance certificate from SARS.

Emigrants who have formally applied to SARB to leave South Africa can transfer up to R10 million per family unit, or R20 million with special approval. Non-residents face no restrictions transferring money brought into or earned within South Africa abroad.

Recent reforms have relaxed exchange controls for individuals, companies and funds investing back into South Africa through offshore structures known as loop structures. As of 2021, approved entities no longer need FinSurv permission for loop structure investments, just reporting. However, trusts still cannot establish loop structures.

The SARB aims to replace the outdated exchange control system with a more flexible, transparent capital flow management system by 2025. The new framework will focus on reporting requirements rather than needing approval for transactions. This modernization intends to further integrate South Africa’s financial system with global markets.

Distribution rules for foreign investment products

The distribution and sale of financial products and securities in South Africa is regulated under the Financial Advisory and Intermediary Services Act (FAIS). All financial services providers (FSPs), including those based abroad, must be licensed by South Africa’s Financial Sector Conduct Authority (FSCA) to market or sell financial products to investors located in the country.

Under FAIS, providing advice or intermediary services regarding securities constitutes a “financial service” requiring FSCA approval. This applies even if the foreign provider engages with clients outside South Africa. Alternatively, international firms can partner with a local intermediary holding a FAIS license to distribute products to South African investors.

The FSCA oversees securities regulation in tandem with the Johannesburg Stock Exchange (JSE). Key legislation includes the Financial Markets Act, which established the FSCA, and the Companies Act, which governs corporate actions like public offerings. The FSCA issues licenses to various capital market participants and can conduct investigations into potential violations.

South Africa’s securities ecosystem has opened considerably to foreign investment in recent decades. However, global asset managers, investment banks and other providers should be aware of nuances like brokerage requirements for different types of securities. For instance, trades on the JSE must go through a local brokerage account. Companies also face various continuing obligations to the FSCA after registering securities.

Qualified investors

South Africa does not have formal accredited investor rules. However, investments in hedge funds are differentiated based on investor sophistication.

Retail Investor Hedge Funds (RHFs) are aimed at typical investors, with a minimum investment of R50,000 ($3,125). Qualified Investor Hedge Funds (QIHFs) are geared towards experienced institutional investors, with a minimum investment of R1 million ($62,500).

QIHFs have fewer investment restrictions and disclosures than RHFs. The R1 million minimum serves as a proxy for qualified investor status in the hedge fund context, but does not apply to other investments like venture capital. Overall, South Africa takes a relatively open approach to allowing participation in sophisticated products.

Cryptocurrency regulation

South Africa has taken a progressive approach towards regulating cryptocurrencies that aims to balance innovation and risk management. The country has a thriving crypto community, with adoption estimated at 13% of the population in 2022.

Cryptocurrencies are legal to use in South Africa, though not recognized as legal tender. The Financial Sector Conduct Authority (FSCA) is the primary regulatory body overseeing crypto assets and service providers.

In 2019, the FSCA released a consultation paper outlining proposals requiring crypto exchanges and platforms to register with the authority and comply with anti-money laundering rules. This regulatory framework was finalized in 2020. As of October 2022, the FSCA legally classified crypto assets as a financial product subject to its oversight.

Existing crypto providers have until the end of 2023 to apply for a license under the Financial Advisory and Intermediary Services Act (FAIS). The FSCA also gained powers to monitor crypto asset advertising and promotions.

Cryptocurrency transactions are subject to income tax and capital gains tax in South Africa. The South African Revenue Service treats cryptocurrencies as intangible assets for tax purposes.

Leading South African exchanges like Luno, Valr, AltCoinTrader, and iCE3X allow users to easily buy and sell major cryptocurrencies like Bitcoin, Ethereum and Litecoin with rands or crypto. Peer-to-peer platforms and a growing number of Bitcoin ATMs also facilitate access.

As cryptocurrencies grow in popularity among South African investors and businesses, regulators aim to protect consumers while encouraging responsible innovation that could expand financial inclusion.