Crypto assets to be declared “financial products” in South Africa

South Africa’s Financial Sector Conduct Authority (FSCA) has published a draft declaration of crypto assets as a financial product under the Financial Advisory and Intermediary Services Act (FAIS).

What this means, in simple terms, is that cryptocurrency exchanges, advisors, and brokers will have to become registered financial services providers (FSPs).

FSPs are subject to regulation under the (FAIS) which is administered by the FSCA.

The FSCA said the regulation of crypto assets is needed because of the 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,” it said.

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) 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,” the FSCA said.

It is envisaged that implementation of the draft declaration will result in improved disclosures about the high risks involved in investing in crypto assets.

It 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 of data for policymakers and regulators about the crypto asset environment, and to consider whether there is a need for further regulatory interventions.

The FSCA said the draft declaration in no way impacts the status of crypto assets in the context of other laws.

It also does not attempt to regulate, legitimize, 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,” the FSCA said.

Now read: Beware anything to do with cryptocurrencies – South African finance regulator

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Crypto assets to be declared “financial products” in South Africa