All you need to know about regulations in SA

Before entering the Forex market it is always smart to research the regulations in the country you are living in. Almost every country has a regulatory body that oversees the financial sector including the Forex market. The regulatory body in South Africa is the Financial Sector Conduct Authority (FSCA). The main purpose of the FSCA is to regulate the financial markets, providers, and institutions in order to secure the investors’ funds under their gaze. The FSCA is responsible for the Forex trading industry of South Africa, hence it is the regulatory body that gives the brokers licenses. It is important for South African traders to know what exactly the FSCA is, what are its regulations and how it can affect the South African Forex market. In this article, I will reveal the ins and outs of SA financial regulations that will help you make well-informed decisions.

A little bit of history

As mentioned above, the FSCA is the South African Financial watchdog. However, you might have heard that this role was in the hands of the Financial Security Board (FSB). Not to get confused with these two, first let me clarify it before I talk about FSCA regulations.

FSB was the first financial regulator that was established in South Africa. In 1991 Van Der Horst committee recommended SA officials to create an independent body who would oversee, supervise and regulate the financial sector of the country including all non-banking financial providers, which means that pretty much the whole financial sector was under the supervision of FSB.  The main industries that FSB regulations were covering were insurers, financial service providers, capital markets, retirement funds, credit agents, collective investment schemes and some more. Forex brokers that were based in South Africa or the international brokers who were providing services to SA residents were also regulated by the FSB. However, the regulations in this field were not sufficient and the FSB was replaced by the FSCA in 2018.

Obviously, the changes were not only in the name or the structure of the regulator. The FSB regulations that were implied in the Financial sector has remained the same, but there were some other major changes.

With the new changes, the FSCA will provide a better regulatory framework for the Forex brokers operating in South Africa and will be concentrated more on the safety of the funds of investors as well as keeping them informed about the risks related to investments and changes in the regulations.

Here are some of the major changes in FSB regulations

• After changing FSB to FSCA the new regulatory body is responsible for providing quality financial education to the investors. It includes providing some of the best educators of the financial field and the promotion of fair treatment
• The FSCA is responsible to provide the information about the changes in its jurisdiction to companies holding its license. This way, investors will always be informed about the brokerages.
• The financial watchdog is responsible for maintaining the financial stability of the investors in South Africa, meaning that the FSCA will step in if there are any violations from the broker’s side.
• The FSCA is responsible for overseeing the development of the financial market in South Africa to ensure efficiency.

How do FSCA regulations affect the FX market

Okay, I understand that the topic about the regulations might seem a little boring, it is not something like “how to get rich with Forex trading overnight”, however, something like getting rich overnight does not really exist and South Africa Forex trading regulations can have a great impact on your trading career and it is worth knowing.

Not only is the FSCA responsible for overseeing the operations of regulated Forex brokers, but also responsible for providing legal assistance to any victims of financial scams within the country. If the broker is regulated the watchdog can take necessary measurements and fine the broker or revoke its license. However, if the broker is not regulated the watchdog can’t really do much. In this case, what it can do is to issue a warning about the broker and emphasize that it is operating in the country illegally.

FSCA regulated brokers in South Africa

All of the FSB regulated brokers in South Africa are now regulated by FSCA. Hence if you will see the list of the brokers regulated by FSB and the other list suggesting brokers that are regulated by the FSCA you will see the same brokerages included. While trading in South Africa you have an option to trade with many different brokers it includes:

• • Brokerages that are established in South Africa and are regulated by FSCA. It has some of the advantages and disadvantages. The main advantage is the broker is based in your country and is regulated by the local watchdog. Hence, if you will have any kind of issue with it, you can always approach FSCA and it will be easier for them to solve the problem. The disadvantage here is that Forex trading in South Africa is just developing, therefore the brokerages might not offer the quality of the service you would like to have.
  • FSCA regulated brokers in South Africa that are international brokerages. This is the best option you can get. Such brokers have a long experience, they are providing a good service,, have a wide audience of the customers and are reliable, the large international brokerages offer a wide selection of trading instruments. At the same time, they are regulated by the local financial authority and are safe to trade with.

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Brokers that are not regulated FSCA

As I have mentioned above the Forex market is still developing in South Africa and it hasn’t been too long since large brokerages started expanding in this direction. Therefore there are some big brokerages that are not yet imposed to the Foreign Exchange regulations in South Africa,  or to say it differently, are not regulated yet. Usually, I do not advice traders to trade with the brokers that are not regulated in the country of their residence, simply because Forex trading already contains risk and trading with the unregulated broker raises the risk even more. However, with SA you need to consider two main factors here.

• Some regulators have a steel solid reputation, these regulators are FCA, ASIC, CySEC and several more in Europe. The brokers that are regulated by these financial authorities are the most reliable ones. However, they might not have the FSCA regulations yet. It is still possible to get a good service from them, especially if the brokers are regulated not only by one but several reliable authorities. Unfortunately, the FSCA still has a lot more to do, in order to be considered a reliable regulator.
• There are brokers that either has no regulation or hold a very unreliable one from offshore countries like Belize. These brokers are often not compatible with the FSCA regulations. Hence, I strongly advise staying away from them. If you find yourself scammed but one of these companies, the FSCA won’t be able to change anything.

In the end, it is the best to trade with the brokers that are international, regulated by one or more highly reliable financial authorities and at the same time are regulated by the FSCA. There are many cases when the brokerages that are operating in SA illegally claim to have a local license, such brokers are scammers and you should be aware of it. FSCA makes it available for every trader to check if a particular broker is truly regulated or not. You can check it on the official website of the FSCA by the registration name of the broker or the license number of it, which must be displayed on the website of the brokerage.

Cryptocurrency regulations in South Africa

As you could already guess besides Foreign Exchange regulations in South Africa, the FSCA is also responsible for cryptocurrency regulations alongside the SARB (South African Reserve Bank), however, things are not that clear with crypto as it is for Forex trading. Since the appearance of cryptocurrencies, mainly Bitcoin, the industry was under South Africa reserve bank regulations.

Despite the reserve bank regulating cryptocurrency trading, the digital assets were not recognized as currencies in the country. The SA government has quite a strange approach to cryptos in general. For example, most countries either completely banned digital assets or opened up the Blockchain sphere.

South Africa changes its view on crypto

As the government officials where stating cryptocurrencies cannot be considered as real currencies because of lacking the characteristics. The coins are not issued by the government as fiat and the value of the cryptocurrencies are not based on real assets such as gold. Therefore South Africa was considering coins as digital tokens that were not really a currency. However, the later popularity of the coins altered the government’s approach towards the assets. As one of the biggest economic centers of the whole African continent, SA became the center of fintech development. The laws and regulations that were presented on the financial market soon became redundant for the new environment. Alongside the payment systems, cryptocurrency regulations in South Africa were changed as well. Cryptocurrencies are not considered as real currencies yet, but they are seen as hobbyist financial assets. It means that no matter how much money you funnel into your asset, the government will see it as you funding your hobby.

SARB regulations on cryptocurrencies

Changing the status of cryptocurrencies from digital tokens to hobbyist financial instruments is the first step made by the government and more changes will follow. It is completely legal for South Africans to buy, hold or trade cryptocurrencies in South Africa. Although changes will indeed follow the status quo, it is highly unlikely that cryptocurrencies will receive something rash like a ban. So there is nothing to worry about if you are into crypto trading. However, there are no proper Bitcoin regulations in South Africa, so keep in mind that the government will not back you up if you encounter a scam. There are three main problems associated with cryptocurrencies that bother every government.

• Investors are often not well informed about the risks connected to cryptocurrency trading. This is not a problem for South Africa only, but the whole world.
• Countries are still working on the regulatory framework of cryptocurrency trading and it needs to be developed from scratch.
• Money laundering and illegal transactions. As the blockchain industry allows anonymous transactions, the cryptocurrency industry might be the best way for money laundering.

Last year, the government of South Africa started working on the regulatory framework to give a direction to crypto trading and implement stricter laws and guidelines. The South African Reserve Bank (SARB) that is in charge of the financial assets such as cryptocurrencies has released a consultation paper that focuses on crypto assets in the country. According to the SARB, the main focus of the consultation paper is to

• Provide information and an overview of the risks and benefits associated with crypto assets
• Discuss the available regulatory approaches that SA can take
• Present policy proposals to the parties involved in the cryptocurrency industry.

South Africa on the way to strict regulations

It hasn’t been too long since South Africa started to work in a better environment for investors in the country. While many brokers and traders do not like strong interference of the government especially into the financial sector. It is needed for the country to have a proper regulatory framework for trading and investment.

The government of South Africa is adapting the so-called “Twin Peaks” model of financial sector regulations. This model was first used successfully in Australia and has been implemented in Belgium, Netherlands, New Zealand, and the United Kingdom. Till 2018 South Africa had the FSB, as a “super regulator” responsible for the whole financial sector. Instead of one super-regulator, the new “Twin Peaks” model will create another institution.

• The FSCA – the regulator will be responsible for market conduct regulations, investment managers and investment funds, Forex trading and the brokers providing financial services
• The SARB – the regulator will be responsible for the financial institutions including the banks.

These changes will get more active in the ongoing year and we can expect the SA financial regulations to get more strict in order to create a better and safer environment for the investment and trading segments in the country.

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