SOUTH AFRICA: DECLARATION OF CRYPTO ASSETS AS A FINANCIAL PRODUCT
Following the publication of a draft declaration in November 2020, the Financial Sector Conduct Authority (FSCA) has finally declared crypto assets as ’financial products’ in terms of the Financial Advisory and Intermediary Services Act 2002 (FAIS), effective from 19 October 2022 (Crypto Asset Declaration).
According to the Crypto Asset Declaration, ‘crypto asset’ means ’a digital representation of value that:
- 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;
- applies cryptographic techniques; and
- uses distributed ledger technology.’
The effect of the Crypto Asset Declaration is that any person providing financial services (comprising the furnishing of ‘advice’ and/or the rendering of ‘intermediary services’, each as defined in FAIS) in relation to crypto assets is required to be appropriately licensed as a financial services provider (FSP) under FAIS.
To ensure a smooth compliance transition, the FSCA has published, together with the Crypto Asset Declaration, an exemption in terms of which providers of financial services related to crypto assets are currently exempt from the FAIS licensing requirement (and, by default, from all FAIS-related requirements applicable to FSPs) as long as those providers submit FSP licence applications to the FSCA between 1 June 2023 and 30 November 2023 (Crypto Asset FSP Exemption). In respect of such a provider, the Crypto Asset FSP Exemption will apply until such time as the FSCA has made a final determination on the relevant FSP licence application.
The Crypto Asset FSP Exemption indefinitely and unconditionally exempts crypto asset miners, node operators and persons rendering financial services in relation to non-fungible tokens from the FAIS licensing requirement (and, by default, from all FAIS-related requirements). For the avoidance of doubt, such persons are not required to submit an FSP licence application to the FSCA between 1 June 2023 and 30 November 2023.
The FSCA also appears to be alive to the fact that it may not be necessary nor practicable to subject providers of financial services in relation to crypto assets to certain FAIS-related requirements. In this regard, the FSCA has published, together with the Crypto Asset Declaration, a ‘Draft Exemption of Persons rendering Financial Services in relation to Crypto Assets from Certain Requirements’, which proposes to exempt licensed Crypto Asset FSPs, their key individuals and representatives from certain requirements of, amongst others, the General Code of Conduct for Authorised Financial Services Providers and their Representatives and the Determination of Fit and Proper Requirements, 2017 (Draft Exemption from Certain Requirements).
The Draft Exemption from Certain Requirements is currently open for public comment until 1 December 2022. Submissions are to be made to the FSCA using the submission template (also available on the FSCA’s website).