Crypto is not, by law, a financial product

CRYPTOCURRENCIES, or more correctly 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 protections to consumers buying or investing in them.

This week the Financial Sector Conduct Authority (FSCA) gazetted the “Declaration of Crypto Assets as a Financial Product under the FAIS Act”. 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.

At a press briefing on Thursday, the Commissioner of the FSCA, Unathi Kamlana, said it was not in the public interest to have these types of entities in the ecosystem operating outside the regulatory net.

“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,” he said.

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 selling them must be licensed by the FSCA to deal in that particular product. New providers will need to register between June 1 and November 30, 2023. 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 FAIS Act, which means 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.