The regulations on crypto assets and the impact on the South African insolvency regime

Abstract

The rise of cryptocurrency and blockchain technology has introduced novel challenges within legal frameworks globally. In South Africa, the recent regulation of crypto assets as financial products under the Financial Advisory and Intermediary Services Act (FAIS Act) signifies an important step toward managing these digital assets. However, this development has significant implications for the South African insolvency regime, as insolvency practitioners must now grapple with identifying, preserving, and realising crypto assets in insolvent estates.

This study examines the intersection of crypto asset regulation and insolvency law, focusing on the classification of crypto assets as either property or financial instruments within the South African legal context. It explores how the Declaration by the Financial Sector Conduct Authority (FSCA), alongside the Conduct of Financial Institutions Bill (COFI Bill), affects the duties of insolvency practitioners, particularly in identifying, tracing, and liquidating crypto assets. Additionally, the study analyses the landmark Mirror Trading International (MTI) case, where a South African court recognised Bitcoin as intangible property under the Insolvency Act, setting a precedent for future insolvency proceedings involving crypto assets.

Through a comparative legal analysis of international jurisdictions, including the United States, the United Kingdom, and Japan, the study evaluates the effectiveness of South Africa’s regulatory approach and its alignment with global best practices. The findings highlight the ongoing challenges in enforcing insolvency law on decentralised, pseudonymous, and volatile assets, underscoring the need for further legislative development.

This research contributes to legal scholarship by identifying gaps in the current regulatory framework and proposing recommendations to enhance the legal certainty surrounding crypto assets in insolvency proceedings. Ultimately, it provides insolvency practitioners and policymakers with insights into addressing the complexities of crypto assets within the South African legal landscape.