Given the ups and downs of the blockchain industry coupled with the widely accepted principle that no one can truly predict the general market, there are many uncertainties which plague the blockchain world, at least for its regulators. Though the industry is no longer so informal and detached from State regulation and scrutiny as it once was (with bodies like SARS, the Intergovernmental Fintech Working Group (IFWG), the South African Reserve Bank, National Treasury etc. all keeping a close eye on the crypto industry), there is still some uncertainty in the general public about what is required from them or whether they have protection.
It is worth noting the Financial Institutions Protection of Funds Act 28 of 2001 (the FI Act). The Act imposes certain duties on persons dealing with funds of clients and dealing with trust property when it is controlled by financial institutions or nominee companies. According to the FI Act, ”trust property” means –
“ [A]ny corporeal or incorporeal, movable or immovable asset invested, held, kept in safe custody, controlled, administered or alienated by any person, partnership, company or trust for, or on behalf of, another person, partnership, company or trust, and such other person, partnership, company or trust is hereinafter referred to as the principal.”
Clearly, by this definition, a crypto asset could be construed as being trust property. The Act’s peremptory provisions would then apply: anyone who controls or keeps in their custody the crypto assets (or any trust property for that matter) would need to handle the trust asset with the utmost good faith, exercising proper care and diligence. This duty of care is extended in the Act’s Chapter 1 stating further that such body who controls or has custody over the trust property –
“ [M]ay not alienate, invest, pledge, hypothecate or otherwise encumber or make use of the funds or trust property or furnish any guarantee in a manner calculated to gain directly or indirectly any improper advantage for himself or herself or for any other person to the prejudice of the financial institution or principal concerned.”
Though we have more regulation in South Africa on assets which are not blockchain, the gradual snowballing of regulation and red tape is increasing. Recent fraud matters such as the Cajee brothers and JP Markets matters also necessitate quicker and stricter rules, which may see the rise of a series of civil and criminal cases.
If you need any assistance or clarity on legally sound financial protection for your assets or crypto assets, do not hesitate to contact us.