FSCA moves to regulate crypto in historic shift

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 20 Oct 2022

The Financial Sector Conduct Authority (FSCA) yesterday formally declared crypto as a financial product in South Africa.

The move marks a new phase in regulating the crypto market, making it easier for authorities to monitor the market and protect consumers.

The gazetting of the declaration by the FSCA, which is housed in the South African Reserve Bank (SARB), takes place almost a year since regulators invited the public to comment on the matter.

On 20 November 2020, the FSCA published the draft declaration for public comment.

The recognition of crypto assets as financial products comes as the adoption of crypto and the entry of new players into the South African market has sky-rocketed.

Yesterday, the FSCA said after soliciting public input for almost a year, a total of 94 individual comments on the draft declaration were received from 22 commentators.

Following the public consultation process, the FSCA yesterday published the final declaration in the Government Gazette and on its website.

“This notice is called the declaration of a crypto asset as a financial product under the Financial Advisory and Intermediary Services Act, 2022 (FAIS). This declaration takes effect on the date of publication.”

After years of taking the stance that it would not regulate the crypto-currency industry, the SARB re-examined its position and is now working to introduce a regulatory framework to govern crypto transactions.

Kuben Naidoo, deputy governor of the SARB, recently spoke at a PSG Konsult webinar, explaining that the framework for a regulatory regime for the use of crypto-currencies will play a key role in ensuring investor protection and confidence, as well as create a safer crypto ecosystem in SA.

He pointed out the SARB and Intergovernmental Fintech Working Group were actively considering taking several steps to reduce the risk of crypto-currencies being used to evade existing regulations, and plans were afoot to bring crypto into the regulatory regime under the auspices of the FSCA.

According to the FSCA, a crypto asset means a digital representation of value that – “(a) is not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility; (b) applies cryptographic techniques; and (c) uses distributed ledger technology”.

To support a smooth transition into the FAIS framework, the regulator said, providers of financial services related to crypto assets are required to apply for the relevant licence between 1 June and 30 November 2023.

In addition to the declaration and policy document, the FSCA also published a general exemption of persons rendering financial services in relation to crypto assets.

It reads: “The purpose of this exemption is to further facilitate transitional arrangements for existing providers of crypto asset activities.

“The transitional arrangements entail that a person may continue to render financial services in relation to crypto assets without being licensed, provided that such person applies for a licence under the FAIS Act between 1 June and 30 November 2023.

“The exemption is also subject to further conditions as specified in the exemption. The exemption will apply until the licence application submitted has been approved or declined; and exempt certain ecosystem participants from the FAIS Act.

“These participants are crypto asset miners and node operators performing functions in respect of the security and health of the network, as well as persons only rendering financial services in relation to non-fungible tokens.”