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Prediction markets expose an awkward gap in South Africa’s current crypto-regulatory framework. The difficulty is not simply that they involve digital assets. It is that they sit at the intersection of at least three legal regimes at once: crypto regulation, exchange control and, potentially, the law of derivatives. That makes them harder to classify than ordinary crypto trading products.
South Africa has already taken meaningful steps to regulate crypto assets, but in a layered way. In 2022, the Financial Sector Conduct Authority (“FSCA”) declared crypto assets to be financial products for purposes of the Financial Advisory and intermediary Services Act (“FAIS”), which brought financial services in relation to crypto assets within the conduct-regulatory perimeter. That was an important step, but it did not answer every downstream classification question. It particularly did not resolve how more complex crypto-native products should be treated where they begin to resemble instruments traditionally associated with financial markets rather than simple spot exposure to a token.
That is where prediction markets become difficult. A prediction-market product typically allows participants to take a position on whether a future event will occur. In economic substance, that can start to look less like holding a crypto asset and more like entering into a contract whose value turns on an external event. Once the product is framed in that way, the Financial Markets Act (“FMA”) becomes relevant.
Section 3(2) of the FMA is especially important. It provides that any law or the common law relating to gambling or wagering does not apply to any activity regulated by or under the Act. That means the crucial question is not merely whether a prediction-market contract looks like a bet. The prior question is whether it can be characterised as an activity regulated by or under the FMA in the first place. If it can, the ordinary gambling-law analysis may not be decisive. If it cannot, that gambling-law analysis remains very much alive.
That makes the derivative question central. South African financial-markets regulation already contemplates derivatives and OTC derivatives as part of the broader regulatory architecture, and the Act itself is aimed at regulating financial markets and market infrastructure, while the regulations under it recognise over the counter (“OTC”) derivative providers.
The gambling side of the issue therefore remains relevant. The National Gambling Act regulates bets and wagers, and section 4 uses broad language that includes staking money or anything of value on a contingency. On its face, a market built around positions on event outcomes naturally raises that issue. The position is made more uncertain by the fact that the National Gambling Amendment Act, which aimed among other things to regulate interactive gambling, still records its commencement as “to be proclaimed.” So, South Africa is left with an incomplete fit between older gambling concepts and newer market-based digital products.
Crypto adds a further layer. National Treasury’s draft Capital Flow Management Regulations would bring crypto assets more squarely into the exchange-control framework, including in relation to cross-border crypto asset transactions. Treasury has said expressly that the draft regulations are intended to address gaps in the current framework in relation to cross-border crypto asset transactions and to complement existing FSCA and Financial Intelligence Centre (“FIC”) oversight. That is significant for any event-based crypto product with offshore legs, offshore collateral or cross-border settlement. But exchange-control treatment still does not answer the prior classification question under the FMA. It regulates the movement of value, not necessarily the legal character of the product itself.
That is the real gap. South Africa has moved some distance in regulating crypto assets as financial products and in drawing crypto into exchange-control supervision. But prediction markets reveal that there is still uncertainty where a crypto-linked product starts functioning less like a token and more like a contract on an event. At that point, the FMA and section 3(2) become highly relevant, because they sharpen the question of whether the product belongs in the world of regulated market activity or remains vulnerable to being characterised more simply as a wager.
For businesses and market participants, that uncertainty is not academic. Classification determines which regulator may have jurisdiction, what licences may be required, which conduct standards apply, and whether the product can lawfully be structured or offered in South Africa at all. Until that question is answered more clearly, prediction markets will remain one of the more interesting fault lines in South Africa’s evolving crypto framework.
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Read the original publication at ENS
