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Crypto providers in SA now caught in the licensing net
In a significant move toward regulatory oversight, the South African Reserve Bank (SARB) has officially classified crypto assets as financial assets under the Financial Advisory and Intermediary Services (FAIS) Act. The decision comes after the initial warning issued by SARB regarding the volatility of the crypto asset market.
Lerato Lamola-Oguntoye, a consultant, and Analisa Ndebele, an associate at Webber Wentzel, have provided an analysis of the implications of this development.
In their joint analysis they say, “The classification of crypto assets as financial assets under the FAIS Act is a notable step by the South African regulators. It signals their intention to establish a regulatory framework for the crypto industry and ensure the protection of investors and consumers.”
They further explains, “The FAIS Act, although not originally designed for the digital environment, will serve as a starting point for regulating crypto assets in South Africa. However, it is important to acknowledge that this is an ongoing learning process, and more comprehensive regulation under the Conduct of Financial Institutions Act is still in the pipeline.”
Under the FAIS Act, individuals providing financial services are required to hold a financial services provider (FSP) license. This means that crypto asset service providers (CASPs) will now be subject to the same obligations as other financial service providers.
Lamola-Oguntoye and Ndebele elaborate on the definition of crypto assets under the FAIS Act, stating that it includes “digital representations of value that are not issued by a central bank but can be traded, transferred, or stored for utility.”
They emphasise that the intentionally broad and technology-neutral definition of crypto assets is significant. It is worth noting that crypto assets are not considered legal tender in South Africa, leading to the use of the term “crypto assets” rather than “cryptocurrency.”
The experts add, “The inclusion of crypto assets under the FAIS Act broadens the scope of financial services to cover activities related to these assets. Individuals who assist others in buying, selling, managing, administering, or servicing crypto assets will be considered as providing a financial service and must obtain an FSP license.”
Addressing the exemption period under the FAIS Act, Lamola-Oguntoye and Ndebele explain, “CASPs currently providing financial services related to crypto assets are exempt from the Act’s requirements during the application period from 1 June to 30 November 2023. This exemption will continue until a formal response is received regarding their application for an FSP license.”
Regarding the relationship between the FAIS Act and the Financial Intelligence Centre Act (FICA), they advise, “CASPs must carefully evaluate whether they fall under the definition of accountable institutions as outlined in Schedule 1 of FICA. Compliance with FICA obligations, such as registration with the Financial Intelligence Centre (FIC), is an additional consideration alongside the requirements of the FAIS Act.”
They caution, “Non-compliance with registration requirements under the FAIS Act and FICA can result in penalties and administrative sanctions. It is crucial for individuals and entities in the crypto sector to assess the need for registration under both acts and ensure timely compliance.”