South Africa’s crypto conundrum: Why modernising collective investment schemes is critical for retail investors

“We’ve built a perimeter around advice and intermediation, but not around the product wrappers South Africans actually use to save,” says Dr Wiehann Olivier, Partner and Head of FinTech & Digital Asset at Forvis Mazars. “Bringing crypto into CIS would align investor protections with where demand already is, rather than pushing it into opaque or offshore vehicles.”

Why CIS Matters: Tax and Investor Outcomes

Under the current CIS tax regime (a regime which National Treasury has been threatening to change), income distributed within 12 months flows through to investors, and capital gains realised inside a CIS portfolio are disregarded at the fund level — a system designed to be neutral and efficient for long-term savers. By contrast, crypto funds operating outside CIS do not benefit from these rules. Routine buying, selling or rebalancing of underlying crypto assets can trigger taxable events under ordinary principles, eroding returns compared to a CIS-compliant portfolio with similar activity. “Tax neutrality is a cornerstone of CIS structures,” notes Graham Molyneux, Partner and Asset Management Leader at Forvis Mazars. “Without similar treatment for crypto, local investors face unnecessary friction and are incentivised to look offshore — which is precisely what regulation should aim to prevent.”

Regulation 28: Pensions Still Locked Out — and Grey Areas Persist

Pension funds remain prohibited from investing in crypto assets under Regulation 28 of the Pension Funds Act, which sets a 0% limit for crypto exposure in 2022. This restriction persists even as limits were modernised for infrastructure, offshore assets, hedge funds, and private equity. The rule has sparked debate: Can trustees invest in listed companies that hold significant Bitcoin reserves as part of their treasury policy? Does that constitute indirect exposure that breaches the spirit of Regulation 28?

Regulators have not issued explicit look-through guidance on equity holdings. Industry commentary suggests investing in “underlying technology” is not automatically prohibited.

“The aim isn’t to endorse crypto, it’s to acknowledge that global markets are moving forward. Pension funds in the US, UK, and parts of Europe already allow small allocations to crypto-related businesses under strict oversight. South Africa needs to consider similar steps and modernise its frameworks. Including crypto within CIS would keep capital onshore, improve transparency, and ensure investor protections evolve with the times,” says Dr Olivier.

Is CIS Inclusion on the Horizon?

Authorities have consulted widely on crypto since 2019 and, in 2022, declared crypto a “financial product” under FAIS, triggering licensing for CASPs. The FSCA continues to expand this regime, with hundreds of applications processed. However, CIS eligibility has not yet been extended to crypto.

Meanwhile, the JSE has amended its requirements to allow the listing of ETFs and ETNs referencing spot crypto assets, either directly or indirectly. These listings are subject to robust standards addressing custody, pricing, and market integrity risks, including requirements for cold storage and index-based pricing.

Global Peers Are Moving Ahead

Internationally, Canada has offered spot Bitcoin ETFs since 2021, giving retail and retirement accounts regulated access. The UK recently lifted its restriction on retail access to crypto exchange-traded notes listed on recognised exchanges, allowing households to gain exposure through mainstream platforms. In Europe, regulators are debating whether certain unleveraged crypto ETPs can qualify as eligible assets for UCITS funds, with some jurisdictions already permitting indirect exposure.

South Africa’s recent removal from the FATF grey list underscores its commitment to global financial standards and transparency. This milestone strengthens investor confidence and creates an opportunity to modernise domestic frameworks — including how crypto is treated within regulated investment structures. Aligning CIS rules with international best practice would reinforce this progress and prevent capital from flowing offshore.

A Call for Modernisation

A practical framework for including crypto assets in South Africa’s collective investment schemes must balance innovation with investor protection. Eligibility should be limited to assets with strong market integrity, deep liquidity, transparent pricing, and proven consensus mechanisms, supported by regulated custody and cold storage to reduce operational risk.

Valuation should rely on multi-venue benchmarks and independent verification, while disclosures mirror those for traditional CIS portfolios, clearly outlining risks and costs for retail investors. Preserving the current CIS tax structure is critical to avoid penalising local savers compared to offshore alternatives. “Consistency in valuation and transparency is non-negotiable,” says Molyneux. “If crypto is to sit within CIS, it must meet the same standards of integrity and disclosure as any other asset class — that’s how we protect investors while fostering innovation.”

Finally, the framework must align with exchange control rules by routing inflows and outflows through authorised dealers and existing allowances. This keeps capital within the regulatory perimeter and reduces arbitrage risk.

The aim is not to endorse crypto but to regulate access. Done right, CIS inclusion can improve transparency, reduce harm, and ensure investor protections evolve with market demand.

Author:

Dr Wiehann Olivier, Partner and Head of FinTech & Digital Asset