The Financial Advisory and Intermediary Services Act 37 of 2002 regulation of crypto assets and its impact on South Africa’s international trade

Abstract

In October 2022, the Financial Sector Conduct Authority (FSCA) published a General Notice wherein crypto assets were declared as financial products in terms of section 1 of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS Act ). This study examines how the regulation of crypto assets as financial products under the FAIS Act impacts international trade in South Africa. It commences by exploring the nature of crypto assets and distinguishing them from fiat currency as some crypto assets can be currencies. It establishes their classification as decentralised convertible virtual currencies. This means that crypto assets have no centralised authority, like a central bank, which issues them. Instead, they operate on a decentralised network, blockchain. The study further examines the development of international trade and the factors that influence it, focusing, especially on, the theory of comparative advantage. This theory claims that benefit from trading with each other by specialising in the production of a certain good or service at a lower cost. This leads to the examination of the role currency plays in international trade transactions. It establishes that the US Dollar is the dominant currency used in international trade transactions and that there is a global call for the use of an alternative currency for international trade transactions. This study contends that certain crypto assets in the form of cryptocurrencies are a viable alternative to the US Dollar that could be used as the dominant currency in international trade transactions. It further asserts that crypto assets offer potential solutions to the many challenges of international trade such as high transaction costs. The use of crypto assets as a medium of exchange in international trade transactions eliminates the need for intermediaries thereby making the transaction cheaper and faster. Finally, this study analyses the FAIS Act as a regulatory framework for crypto assets in South Africa. It contends that this regulation classifies crypto assets as derivative financial products. It further explores how this regulation impacts international trade. It concludes that the regulation of crypto assets as financial products positively impacts international trade in South Africa. Crypto assets offer a much cheaper and faster alternative to fiat currency in international trade transactions. This regulation balances risk management and innovation thereby fostering an environment in which crypto assets can positively contribute to the development and modernization of international trade in South Africa.