Roger Eskinazi | Managing Partner | Tickmill South Africa | mail me |
It was the late noughties that saw the most prominent emergence of digital tools. These tools paved the way for a new generation of investment companies. This new generation came in the form of online trading platforms. Since then, rapid innovation has spurred the rise of emerging inventions like cryptocurrency. The speed of cryptocurrency’s mainstream adoption has put online trading into overdrive.
Regulators have faced challenges in trying to oversee these new markets. In South Africa, related legislation is slowly but surely taking shape.
The primary regulatory body overseeing financial markets in South Africa is the Financial Sector Conduct Authority (FSCA). Over the past few years, the FSCA has introduced several important reforms. Furthermore, these reforms aim to bring higher levels of security and transparency to South Africa’s financial sector. Among the changes are stricter compliance requirements for online trading platforms. These compliance requirements also apply to the traders who use them.
Tax notes for online traders
Online traders need to understand their tax obligations clearly. Just like traditional investors, they must declare capital gains to SARS. Profits made from investment activities, whether offline or online, must be declared and are taxed accordingly.
Currently, Capital Gains Tax is part of normal income tax. It is calculated based on the sliding tax tables for individuals. However, only 40% of the capital gain is included in the calculation. And this portion is taxed according to the individual’s applicable tax bracket. As a result, the effective tax rate on investment profits is often lower than for regular income.
Most recently, capital gains realised from the trade of cryptocurrency have also been incorporated into the capital gains taxation system. There are activities that remain tax-free, including the purchasing of cryptocurrency with fiat currency and, holding and transferring cryptocurrency between wallets that are owned by the same person.
To remain compliant therefore, online traders need to ensure that they are registered with SARS and declare their gains accurately. Individuals must keep comprehensive records of their cryptocurrency transactions, including the dates, amounts, counterparties, and the nature of each transaction. These details are important for accurate tax reporting and to avoid facing unnecessary fines and penalties.
Look out for the proper licensing
The rate of cybercrime skyrocketing, it’s vital to make sure that the broker or online trading platform you use is properly licensed. The best place to start is to check whether the platform holds an ODP license, which is a mandatory requirement for any business that facilitates the trade of Over-the-Counter derivatives (OTCs).
In order to be granted an ODP license, trading platforms need to adhere to a stringent list of regulatory standards, maintain a robust capital structure and perform rigorous customer due diligence.
We were in fact the first foreign domiciled ODP license holder in South Africa last year, after an application that took two years to finalise. Obtaining the license has been a crucial step in our journey towards bringing our traders peace of mind and fostering transparency at every level of our organisation.
A quick check can go a long way
To this point, the FSCA regularly produces reports that flag trading platforms and brokers who have been pinpointed as operating illegally or running scams that have robbed investors of their hard-earned money. Apart from only engaging in trading activities with a platform that holds an ODP license, prospective traders can also run a check online that will confirm whether a trading platform is an authorised financial service provider.
Regulatory reforms have had a profound impact on South Africa’s market dynamics. And, by increasing oversight and transparency, the FSCA aims to reduce market manipulation. In addition, this is to ensure that retail traders are not exposed to undue risks. This has had the effect of stabilising the market, creating a more level playing field for traders of all experience levels.
While regulatory changes can often feel burdensome, they also present opportunities for traders. By fostering a more transparent and secure trading environment, South Africa’s regulatory reforms ultimately aim to create a more sustainable market. Traders who embrace compliance as part of their strategy not only mitigate risks but also position themselves to take advantage of a more stable market.
Related FAQs: Online trading regulations compliance
Q: What are the main regulations that govern online trading?
A: The main regulations governing online trading include those set by financial authorities such as the SEC in the United States, FCA in the UK, ESMA in Europe and Financial Sector Conduct Authority (FSCA) in South Africa. These regulations are designed to protect consumers, ensure market integrity, and regulate the operation of trading firms.
Q: How do online trading regulations compliance affect my trading operations?
A: Online trading regulations are essential as they enable firms to operate in a compliant manner. They set strict guidelines on how trades are executed, the reporting requirements for asset transactions and the liability of firms in case of issues.
Q: What is the role of regulatory bodies in online trading?
A: Regulatory bodies monitor the trading environment to ensure compliance with laws and regulations. They provide guidance on best practices, investigate issues and impose sanctions on firms that fail to adhere to regulations.
Q: How can I ensure that my trading firm is compliant with regulations?
A: You can ensure compliance by choosing a trading firm that is regulated by a recognised authority. Check for their licensing status, adherence to consumer protection laws and their operational practices in accordance with industry regulations.
Q: What should I consider when trading commodities and forex online?
A: When trading commodities and forex, it is crucial to understand the regulatory environment that governs these markets. Ensure that your trading firm provides clear information on contract specifications, asset classifications and the liquidity of the trading outlet.
Q: Are there specific regulations for trading crypto assets?
A: Yes, trading crypto assets is subject to specific regulations that vary by jurisdiction. Many regulatory bodies have issued guidelines to regulate these assets, focusing on consumer protection, anti-money laundering (AML), and ensuring that trades are executed fairly.
Q: What are the consequences of non-compliance with online trading regulations?
A: Non-compliance can lead to severe consequences, including hefty fines, suspension of trading licenses and legal action against the firm. This can also result in a loss of consumer trust and operational limitations.
Q: How do regulations impact the liquidity of trading markets?
A: Regulations can significantly impact the liquidity of trading markets by ensuring that there are adequate provisions for trades to be executed efficiently. Strict regulations may enhance consumer confidence which increases market participation and liquidity.
Q: What guidance is available for new traders regarding compliance?
A: New traders can seek guidance from regulatory bodies, financial advisors and educational resources provided by trading platforms. These resources often cover essential compliance issues, best practices, and the importance of understanding the regulations that affect their trading activities.
