In a draft declaration issued on 20 November 2020, the FSCA proposed to include crypto assets as a category of financial product under the Financial Advisory and Intermediary Services Act, 2002 (“FAIS”). We wrote about this previously, here.
Speaking to the draft declaration in a September 2021 media briefing, Ms Olaotse Matshane, Chairperson of the Intergovernmental Fintech Working Group, noted that consumer protection remains a priority of the FSCA and the intention behind the draft declaration. The FSCA is working toward creating a safe, regulated environment for investments in crypto assets, starting with the requirement for crypto asset providers to be licensed under FAIS. FAIS authorisation will in turn result in crypto asset providers needing to comply with statutory requirements such as sensible advertising, advising of consumers regarding the risks associated with particular products, and conducting an investment analysis before investments are made. Ms Matshane re-iterated that:
- Crypto assets are not currently regarded as a legal tender in South Africa, and the regulators are not looking to change this position. The idea is not to regulate crypto assets per se, but is instead to regulate the custody, buying or selling, of crypto assets.
- The intended regulation of crypto assets is not an endorsement of crypto assets as an investment option. Crypto assets remain inherently risky and the public must be cautious when dealing with crypto assets.
While we still do not have any indication on the timing of the regulations, the recent spate of crypto asset investment scandals, points to regulation being imminent. Additional potential regulatory developments include amendments to the:
- Financial Sector Regulation Act, 2017; Financial Markets Act, 2012; National Payment System Act, 1998 and the Conduct of Financial Institutions Bill, to cover crypto assets and services relating to crypto assets; and
- Exchange Control Regulations 1961, relevant to the regulatory treatment, and associated regulatory reporting implications and obligations, of crypto assets being used for effecting low-value cross-border international payments into and out of South Africa. (Mercury FX, a participant in the IFWG Regulatory Sandbox, in August 2021 completed testing in terms of the South African Exchange Control Regulations 1961).
The IFWG is taking a wait and see approach, monitoring the domestic and foreign developments on issues of money laundering and terrorist financing, consumer protection and tax evasion.