Investments in cryptocurrencies such as bitcoin are leading to an increasing number of complaints being received by the office of the Financial Advisory and Intermediary Services (Fais) Ombud.
However, assistant ombud Thobile Masina says the office is facing a dilemma in finalising and issuing determinations on cryptocurrency complaints because of challenges related to the definition of cryptocurrency and whether it is a financial product or an alternative currency.
The latest Fais Ombud annual report lists cryptocurrency complaints among the new trends.
Complaints relate to cases where these currencies are being marketed as mainstream investment solutions; in some cases, the performance is even guaranteed.
But no disclosure is made that these products are unregulated, or what the risks associated with these investments are and the implications this has on the complainant’s investment.
The report states: “Investigations into a few matters are at an advanced stage and this office is looking to issue its first determination on this type of investment early in its 2019-20 financial year.”
The report covers the Fais Ombud’s financial year to the end of March, but the office has not yet issued any determinations on cryptocurrencies.
Masina says whether cryptocurrencies do or do not fall within the definition of a financial product will determine whether the Fais Ombud has jurisdiction to consider complaints about them.
When the ombud initially dealt with cryptocurrency complaints, its view was that they were not a financial product.
It was, however, then engaged by the Financial Sector Conduct Authority about whether cryptocurrency could be a financial product and, if so, where it fits in among the financial products identified in the Fais Act.
People are looking for alternative means of investing but are not necessarily getting into cryptocurrencies through financial services providers (FSP)...
“They don’t identify them as cryptocurrencies because people are pitching them as just an investment.
“If it is from a FSP, what type of information are they giving regarding this product? The argument, especially from FSPs, is that it isn’t a financial product, it’s just an alternative currency.”
No disclosure is made that these products are unregulated or what the risks are.