It was the late noughties that saw the most prominent emergence of digital tools, which in turn paved the way for a whole new generation of investment companies in the form of online trading platforms.
Since then, spurred on by rapid innovation, emerging inventions like cryptocurrency and the speed of its mainstream adoption have put online trading into overdrive. Regulators have had their work cut out for them in trying to oversee these new markets and in South Africa, the related legislation is slowly but surely taking shape.
The primary regulatory body that oversees financial markets in South Africa is the Financial Sector Conduct Authority (FSCA). The past few years have seen the FSCA bring in several important reforms to bring a higher level of security and transparency to South Africa’s financial sector. Among these changes have been the introduction of stricter compliance requirements for online trading platforms and the traders that use them.
Tax notes for online traders
Online traders need to be aware that just as investors in traditional financial instruments need to declare their capital gains to the South African Revenue Services, they too have to comply with the relevant tax legislations. Explaining the implications of capital gains tax for investors is Roger Eskinazi, Managing Partner at Tickmill, who says that any profits made from investment activities – whether off- or online, need to be declared and are taxed accordingly.
“Currently, Capital Gains Tax is included as part of normal income tax and as such, is based on the sliding tax tables for individuals. However, only 40% of the capital gain is included in the calculation, and this amount is taxed according to the individual’s applicable tax bracket. This often results in a lower effective tax rate on investment profits compared to regular income.”
Most recently, capital gains realised from the trade of cryprocurrency 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
Expanding on another important development, Eskinazi says that with 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.
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. By increasing oversight and transparency, the FSCA aims to reduce market manipulation and 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.
As Eskinazi concludes: “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.”
PERSONAL FINANCE