The Regulation of Initial Coin Offerings in South Africa

Abstract

Emergent and creative uses of virtual or crypto currencies (or assets) have made enormous regulatory waves over the past few years. Many international jurisdictions, including South Africa have taken some steps towards a regulatory approach, however the regulation of crypto assets still remains murky, dubious and is far from clear cut.

A specific emergent and creative use for crypto assets are to raise funds from the public to finance a project / business venture by means of an Initial Coin Offering (ICO) or socalled token launch/offering/generation. An investor in an ICO will pay with fiat currency (or legally recognised money i.e. South African Rands), to finance the project, in exchange for a crypto token of a sort which may be connected with the right to receive some value in return. This value may take various forms, such as access to a network, distribution of the earnings generated by the project, or voting rights. ICOs are currently primarily used by start-ups to bypass the regulatory red-tape of “traditional” capital and fundraising methods though banks or venture capitalists. Countries world-wide grapple with how ICOs should be regulated and so does South Africa.

The CARWG under the auspices of the IFWG issued a comprehensive position paper on crypto assets in April of 2020. An updated version of the position paper has been issued on 11 June 2021. This position paper indicates a proposed policy position of, and makes regulatory recommendations pertaining to, ICOs in South Africa. This mini-dissertation examines these recommendations and policy position through analysing the background of ICOs, the full nature and characteristics of an ICO, as well as the benefits and the risks to ICO issuers and investors, in order to establish a clear understanding of what South Africa’s current regulatory approach pertaining to ICOs is and to identify any potential shortfalls in order to make appropriate recommendations