SA’s Crypto Exchanges, Brokers Must Register as Financial Services Providers

South Africa’s financial regulators have published a draft declaration of crypto assets as a financial product under the Financial Advisory and Intermediary Services Act (FAIS). This means any person furnishing advice or rendering intermediary services about crypto assets must be authorised as a financial services provider and must comply with the requirements of the FAIS Act.

The South African Financial Sector Conduct Authority (FSCA) said this would pave the way for cryptocurrency exchanges, advisors, and brokers to be registered as financial services providers (FSPs).

The FSCA and FAIS require that every FSP be registered with the FSCA before they may legally conduct business.

The FSCA said the implementation of the draft declaration would result in improved disclosures to customers to “highlight the high risks involved in investing in crypto assets”.

Furthermore, those involved in crypto assets will have to adopt a more robust advice process is adopted (including proper risk assessments) when intermediaries decide to advise customers to purchase crypto assets.

The FSCA said the licensing of cryptocurrency exchanges, advisors, and brokers would also 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 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,” said FSCA.

 

“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 public has until January 28, 2021 to comment on the draft regulations.

Crypto Position Paper

In 2020, the Crypto Assets Regulatory Working Group published a Position Paper which made a variety of recommendations pertaining to the regulation of crypto assets.

The working group recommended cryptocurrency “remain without legal tender status” in a roadmap outlining what could become the nation’s first comprehensive crypto laws.

“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,” said FSCA.

IFGW also recommends the National Treasury’s Tax Policy Unit, alongside SARS, consider the adoption of a uniform definition of crypto assets within the South African regulatory framework.

Other key recommendations include:

• Entities providing crypto asset services be regarded as Crypto Asset Service Providers.
• Schedule 1 to the Financial Intelligence Centre Act be amended by adding Crypto Asset Service Provider to the list of accountable institutions.
• The Financial Intelligence Centre should assume the supervisory role and duties to ensure compliance by those Crypto Asset Service Providers business entities that would become accountable institutions with the requirements of the Financial Intelligence Centre Act.
• Initial Coin Offering issuers to be aligned with securities regulation
• The Financial Sector Conduct Authority should decide on whether crypto-assets should be considered as allowable assets for the asset spreading requirements of pension funds. The Financial Sector Conduct Authority should become the responsible authority for the licensing of ‘services related to the buying and selling of crypto assets’. Furthermore, specific conduct standards should be developed for these services.
• The Financial Surveillance Department of the South African Reserve Bank should assume the supervisory and regulatory responsibility for the monitoring of illegitimate cross-border financial flows in respect of crypto-asset services