Over the past few years, there has been a marked uptake in the trading of crypto assets, such as Bitcoin, Ethereum and Monero. These digital currencies often surpass regulatory scrutiny because they are not recognised as financial products. This has now changed.
The Financial Service Conduct Authority (FSCA) has recently provided much-needed clarity on the status of crypto assets in South Africa. On 19 October 2022, the FSCA issued a notice declaring that crypto assets are now regarded as ‘financial products’ under the Financial Advisory and Intermediary Services Act (FAIS Act). This, however, does not mean that crypto assets are accepted as a valid form of payment or legal tender in South Africa. This is a further potential change that the South African Reserve Bank is exploring.
The recognition of crypto assets as a financial product means that crypto-asset service providers must be licenced as financial service providers (FSPs). This declaration further brings crypto-asset providers within the FSCA’s regulatory jurisdiction. As licenced FSPs, crypto asset providers will have to comply with various requirements, such as the submission of compliance reports, financial statements, the appointment of a key individual, the payment of annual levies etc. This also provides consumers with potential recourse against reckless crypto traders as complaints against crypto asset providers can be made to the Financial Advisory Services Ombud.
Crypto asset service provides have been afforded a twelve-month grace period to apply for the appropriate licence with the FSCA. They must apply for licences between 1 June and 20 November 2023 or face potential sanctions and penalties under the FAIS Act. This does not mean that their obligations are deferred for the full exemption period. Crypto asset service providers must, even during the transition period, render financial services honestly, fairly and with due skill, care and diligence.
The FSCA is exploring further potential exemptions from parts of the General Code of Conduct for persons rendering financial services in relation to crypto assets. This exemption has been published for public comment until 1 December 2022.
The ever-changing landscape of crypto assets and digital currencies has become the subject of heightened regulatory scrutiny. The FSCA has stepped up in an attempt to provide order to a largely unregulated landscape. Whether you are a crypto asset service provider or cryptocurrency trader, this is a space to watch.