A new analysis by ENS sets out a problem that regulators across emerging markets are starting to face. Prediction markets, where users buy contracts that pay out based on the outcome of an event, do not fit cleanly inside South Africa's existing legal categories.
The starting point: crypto as a financial product
In 2022, the Financial Sector Conduct Authority declared crypto assets to be financial products under the Financial Advisory and Intermediary Services Act. That move brought intermediation services for crypto into the conduct of business framework. It did not address what happens when a token is also a contract on a future event.
Three regimes pull on the same product
ENS argues that prediction markets sit at the intersection of three legal regimes. The first is the crypto regulatory framework. The second is the exchange control regime, which still covers cross border flows of value. The third is the law of derivatives, including the OTC derivative provider regime under the Financial Markets Act.
The analytical difficulty is that prediction market contracts can look like several things at once. They can look like tokens, since they sit on a public chain. They can look like wagers, since the payout depends on a binary event. And they can look like derivatives, since the holder takes a position on a future state of the world.
The supervisor depends on the characterisation
Each characterisation pulls in a different supervisor and a different rulebook. A pure crypto reading puts intermediaries inside the FSCA conduct perimeter. A derivatives reading brings the platform inside the OTC derivative provider regime. A gambling reading activates provincial gambling boards rather than financial regulators.
Practical takeaway for platforms
For platforms targeting South African users, the practical consequence is that there is no single licence that clearly covers a prediction market business. Operators should obtain legal opinions on each leg of the contract. They should monitor FSCA conduct standards. They should engage early with the South African Reserve Bank where cross border flows are involved. Legislative clarification is likely to follow market activity rather than precede it.