South Africa’s Financial Sector Conduct Authority (FSCA) released a statement today, 20 November 2020, that they intend to declare cryptoassets “financial products” in early 2021. The declaration would come under South Africa’s Financial Advisory and Intermediary Services Act (FAIS).
The FSCA did not state exactly when the declaration would come into effect, but the authority have invited interested members of the public to submit their comments to the office before 28 January 2021, indicating a likely declaration in late Q1 or early Q2 2021.
The declaration of cryptoassets as Financial Products in South Africa would then require any South African company advising people about where and how to invest in cryptoassets and cryptocurrency to become a registered a Financial Services Provider, as per the country’s FAIS act.
The implication of this declaration is that exchanges would require such licenses.
Listen to exchange executives provide their comments:
“The FSCA have no alternative but to declare cryptoassets as financial products,” CEO of AltCoinTrader Richard de Sousa told Global Crypto. “Crypto has acted as an investment tool and financial product for many years now, but the ‘devil is in the detail’ – so whether this will be a net positive or net negative remains to be seen. We can only judge when we get more information about how the FSCA plans on implementing the legislation.”
De Sousa continued: “This is actually positive news for the industry, as it is indicative of the state of crypto, and gives it the recognition it is now demanding globally.”
GM for Africa Marius Reitz said that the move is a positive one.
“Exchanges interact with thousands of consumers,” Reitz said. “And it’s important that exchanges are held to defined regulatory standards. This is positive for the market, and may well lead to more adoption because consumers will have more comfort that the exchanges they interact with comply and meet the requirements set out by regulators.”
The Luno executive continued: “The declaration will make it easier for licensed and legitimate exchanges to obtain banking and auditing services and interact with critical service providers that are necessary to run a business. Overall this move will make it safer for consumers, making it easier for them to distinguish between a scam or non-licensed entity and a licensed entity. It will also provide the consumer with the confidence and comfort that an exchange has the expertise to safeguard their private data and cryptocurrency.”
VALR’s CEO Farzam Ehsani was also welcoming of prudent regulation, but noted that this specific statement was not one of the thirty recommendations originally laid out in the IFGW position paper released in April this year.
“VALR will always welcome prudent and appropriate regulation, particularly as it relates to consumer protection,” Ehsani said. “We’ve been working with SA regulators for many years to inform a regulatory framework that does exactly this. It is important to note though that today’s draft regulation was not one of the thirty recommendations in the position paper on cryptoassets that was published by the regulators in April earlier this year.”
The VALR CEO went on to make an intriguing comment about the definition of financial products: “All of the products in the FAIS act have a central issuer, and cryptoassets such as Bitcoin do not,” he said. “Gold for example is not classified as a financial product under the FAIS act. So we look forward to engaging fully with the FSCA during the comment period to ensure a fair, relevant and appropriate regulatory position that will be of benefit to all South Africans.
Brenton Naicker, head of Business Development at Binance South Africa said that he and his team are excited by the news: “We’ve been working closely with the cryptoasset regulatory working group, and for us this is a step in the right direction with respect to South Africa,” he told Global Crypto. “If we look at price action recently, there is going to be a lot of retail interest, and the FSCA’s core mandate is to protect these users.”
“In South Africa, we’ve seen a lot of bad actors in the space,” Naicker continued, “and this will ensure that retail and institutional clients alike are safeguarded. We’re looking forward to seeing the declaration implemented as well as the other recommendations that were made in April’s position paper.”
The statement by the FSCA released today says that the declaration will be in line with last year’s proposed regulatory paper put out by the SA Reserve Bank’s Intergovernmental Fintech Working Group.
Members of the public and interested parties are invited to provide their comments on the declaration by emailing FSCA.RFDStandards@fsca.co.za by 28 January 2021.
The full statement released earlier today, Friday 20 November 2020, reads as follows:
FSCA publishes a draft Declaration of crypto assets as a financial product under the Financial Advisory and Intermediary Services Act Globally there is rapid growing interest by retail investors to purchase crypto assets. South Africa has also experienced an exponential increase in the provision and use of crypto
assets.
The manner in which crypto assets can be regulated has been under consideration by the National Treasury (NT) and relevant authorities for a number of years. In 2020, the Crypto
Assets Regulatory Working Group (CAR WG) which resorts under the Intergovernmental Fintech Working Group (IFWG) and comprises members of the National Treasury, South African Reserve Bank and Prudential Authority, FSCA, Financial Intelligence Centre, National Credit Regulator and South African Revenue Services, published a Position Paper which made a variety of recommendations pertaining to the regulation of crypto assets.
The draft Declaration is intended to give partial effect to some of the recommendations contained in the Position Paper by declaring crypto assets as a financial product under the FAIS Act. The Declaration would have the effect that any person furnishing advice or rendering intermediary services in relation to crypto assets must be authorised under the
FAIS Act as a financial services provider, and must comply with the requirements of the FAIS Act. This will include crypto asset exchanges and platforms, as well as brokers and
advisors.
It is envisaged that implementation of the draft Declaration will result in improved disclosures to customers that more effectively highlight the high risks involved in investing
in crypto assets and should also ensure that a more robust advice process is adopted (including proper risk assessments) when intermediaries decide to advise customers to
purchase crypto assets. Licensing of intermediaries is also necessary to improve the quality Transitional Management Committee: OB Makhubela (Commissioner) DP Tshidi JA Boyd MM du Toit LP Kekana K Gibson of data for policymakers and regulators about the crypto asset environment, and to consider whether there is a need for further regulatory interventions.
The draft Declaration in no way impacts the status of crypto assets in the context of other laws such as exchange control regulations, requirements under the Pension Funds Act and Collective Investment Schemes Act and so forth, nor does it attempt to regulate, legitimise or give credence to crypto assets. The draft Declaration is merely intended to be an interim step in mitigating certain immediate risks in the crypto assets environment pending the outcome of broader developments currently taking place through the CAR WG which will inform future policy interventions to be implemented across a variety of regulators and laws.
Interested parties are invited to submit comments on the draft Declaration on or before 28 January 2021 to the FSCA at FSCA.RFDStandards@fsca.co.za, using the submission
template available on the FSCA’s website at www.fsca.co.za.
ENDS
Enquiries: Financial Sector Conduct Authority
Email address: FSCACommunications@fsca.co.za
Telephone: 0800 203 722
