On 19 October 2022, the Financial Sector Conduct Authority (the FSCA) issued a notice declaring that crypto assets are a financial product.
In doing so, the FSCA was invoking its powers under the Financial Advisory and Intermediary Services Act, 2002, (the Act) to declare certain products as financial products if they have certain functions or features of existing financial products already recognised in law. This move therefore brings the crypto industry under the FSCA’s regulatory jurisdiction.
The FSCA’s declaration defines crypto assets as:
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. as a digital representation of value which is not issued by a central bank, can be traded, transferred, or stored electronically and applies cryptographic techniques and is distributed through ledger technology.
In a policy memo, the FSCA stated that the declaration was prompted by the rise in the use of crypto assets in South Africa, and a significant increase in scams posing as crypto-related investment opportunities. South Africa has experienced several notable crypto scams, and the FSCA has positioned this new regulation as an avenue to protect consumers by bringing the industry under the FSCA’s oversight. The FSCA’s policy memo also notes that the need for domestic crypto regulation stemmed from recommendations by the Financial Action Task Force (FATF), an inter-governmental global anti money laundering and terrorist financing body, which is considering ‘grey-listing’ South Africa in the global finance system for a variety of regulatory deficiencies.
The FSCA also invited public comment on a draft general exemption which would provide a temporary window for existing crypto financial service providers to continue to operating without being licenced while they await approval or rejection of their licence.
The deadline for submissions on the draft general exemption is Thursday, 1 December 2022.
Comments can be emailed to [email protected].
- The FSCA’s declaration is available here.
- The FSCA’s draft exemption and call for comments is available here.
- The FSCA’s press release is available here.
Please note: The information contained in this note is for general guidance on matters of interest and does not constitute legal advice. For any enquiries, please contact us at [email protected].