With the declaration of crypto assets as a financial product, providers of crypto assets are left wondering whether they need to register as a financial service provider under the Financial Advisory and Intermediary Services Act, 2002.
Following an exemption published by the Financial Sector Conduct Authority, a person who provides a financial service in relation to crypto assets is exempted from the FAIS Act.
In order to transition into the FAIS regime, providers of financial services related to crypto assets are required to apply for the appropriate license between 1 June 2023 and 30 November 2023. This transitional period comes as a relief to many providers who are now able to take advice and prepare for the license application process and the more comprehensive regulatory regime.
During this transitional period, providers may continue to render financial services in relation to crypto assets without being licensed, provided that a license is applied for within the time period mentioned above. This exemption will continue to apply until the license application has been approved or declined.
Providers will also have to comply with the honesty, integrity and good standing requirements of Chapter 2 of the Determination of Fit and Proper Requirements for Financial Services Providers, 2017; the general duty requirements of section 2 of the General Code of Conduct for Authorised Financial Services Providers and Representatives, 2003; and all other requirements in the General Code of Conduct (except for section 13) by 1 December 2023 as if such provider is a crypto asset financial service provider or a representative of a crypto asset financial service provider.
The exemption is further subject to the condition that a provider must provide the FSCA with any information which is requested and that is in the provider’s possession or control in respect of the financial services or similar activities rendered by the provider.
Failure by a provider to comply with the conditions of the exemption will result in the exemption no longer being applicable to them.
Crypto asset miners and node operators performing functions in respect of the security and health of the network, as well as persons only rendering financial services in relation to non-fungible tokens are exempt from the FAIS Act.
Importantly, the declaration of crypto assets as a financial product does not apply to or affect financial services rendered in relation to crypto asset derivatives. Financial service providers providing financial services in relation to crypto asset derivatives are already subject to the requirements of the FAIS Act and are not subject to the exemption.
It is important that providers seek advice in order to ensure that they comply with the conditions of the exemption and prepare to apply for the necessary license next year. Our financial services regulatory team would be able to assist.