The commissioner of the Financial Sector Conduct Authority (FSCA), Unathi Kamlana, says it is not in the public interest to have cryptocurrencies, or more correctly crypto assets, operating outside the regulatory net.
He was speaking at a press briefing yesterday unpacking the gazetting of the Declaration of Crypto Assets as a Financial Product under the FAIS Act. The declaration states that crypto assets, which so far have fallen outside financial regulation in South Africa, are now defined as financial products under the Financial Advisory and Intermediary Services (FAIS) Act, offering considerable protection to consumers buying or investing in them.
“This is a market segment that is growing, and people are choosing to have an exposure to crypto, and given the FSCA’s role as regulators of the financial sector, we have to be responsive to these changes,” Kamlana said.
The FSCA says this is a first step in bringing crypto assets and other financial innovations within the regulatory net, and it was based on the recommendations of the regulator’s Crypto Asset Regulatory Working Group, established in 2019.
It also addresses certain concerns about cryptocurrencies raised by the global Financial Action Task Force in relation to the possible greylisting of South Africa for non-compliance with anti-money laundering and counter-terrorism requirements.
The one-page declaration, which took effect on the date of publication (October 19, 2022), effectively means that providers of crypto assets, such as crypto exchanges, are bound by the same laws that apply to financial advisers and give consumers recourse to the FAIS Ombud if the advice they receive on purchasing these assets fails standards set by the act.
Eugene du Toit, the FSCA’s departmental head of regulatory frameworks, unpacked how crypto providers would fall under the FAIS Act.
As with other financial products, such as insurance or investment policies, the adviser or intermediary must be licensed by the FSCA to sell that particular product.
New providers will have to register between June 1 and November 30 next year, while existing providers may carry on operating, but will also need to have registered by the end of November next year. However, existing providers are, with immediate effect and with certain exceptions, subject to the provisions of the FAIS Act, which includes complying with the fit and proper requirements (regarding honesty, integrity and good standing) and the general code of conduct to which all financial advisers must adhere.
At this stage, crypto mining has not been considered in the legislation, and neither have non-fungible tokens (NFTs). Also, the status of cryptocurrencies as legal tender has not been addressed – an issue that would fall under the jurisdiction of the South African Reserve Bank.
Marius Reitz, Luno’s general manager for Africa, commenting on the classification of crypto as a financial product, said it would help provide regulatory clarity to both investors and crypto asset service providers.
The licensing requirements that would flow from this classification would drive high standards in the industry, particularly in relation to consumer protection, with potential investors easily able to identify those providers that satisfy regulatory requirements.
According to a recent survey by Pet Rock Investments, advisers see crypto being a key part of future planning in the next 12 months, with 72% of advisers already planning to allocate crypto in client accounts.
BUSINESS REPORT