Background and Declaration:
Bitcoin reached a new all-time high earlier this month, surpassing the R600 000 (six hundred thousand Rand) mark. This price increase sparked renewed interest and increased trading in crypto assets which further highlighted the need for the regulation of crypto assets in South Africa.
On 14 April 2020, the Intergovernmental Fintech Working Group released a position paper on crypto assets containing various recommendations for the development of a regulatory framework for crypto assets in South Africa. VDMA’s article on the regulation of crypto assets in South Africa’s financial services landscape, published in the August 2020 edition of Without Prejudice magazine, provides a condensed overview of this position paper.
On 20 November 2020, the Financial Sector Conduct Authority (“FSCA”) published a draft declaration (“Draft Declaration”) which declares crypto assets as a “financial product” in terms of paragraph (h) of the definition of financial product as contained in section 1 of the Financial Advisory and Intermediary Services Act No. 37 of 2002 (“FAIS Act”) and requested submissions to be made in writing to the FSCA on or before 28 January 2021. This article serves as a brief update on the regulatory developments of South African crypto asset regulation following such publication.
The FSCA has expressed concern the interest being shown in crypto assets by investors, the lack of regulation governing crypto assets which exist only in cyberspace and the high risk and volatility associated with such crypto assets. The FSCA has also identified a large number of crypto asset platforms operating in South Africa which hold a significant value of assets. As a result, the FSCA has decided to implement new measurers, through the Draft Declaration, to regulate and formalise the use and trading of crypto assets.
The Draft Declaration will allow the FSCA to issue regulations which regulate the services and service providers in the crypto asset sector. Furthermore, should crypto assets be classified as “financial products” then only the individuals who are authorised in terms of the FAIS Act to provide advice or intermediary services in relation to financial products will be allowed to offer, market or sell crypto assets. Resultingly, any failure to comply with such provisions will mean a failure to comply with the FAIS Act which will in turn bring about severe consequences.
The FSCA has further encouraged the use of service providers which will be registered with the FSCA once regulation provides for such registration, not foreign service providers. This will allow for greater security that the registered service providers being utilised are of a reputable nature and thus protecting the South African consumer. The use of foreign service providers will however still be possible and will not be made unlawful for the time being.
Comments on the Draft Declaration:
Comments on the Draft Declaration must be submitted to the FSCA, through the submission template on its website, by no later than 28 January 2021.
The views of the FSCA and the Draft Declaration are to be welcomed as the first step in ensuring the formal regulation of crypto assets in South Africa. The publishing of the Draft Declaration is an important step towards the regulation of crypto assets in South Africa and VDMA looks forward to actively participating in the legislative process by making its submissions to the FSCA.
In the meantime, VDMA’s team of experts is at your disposal for any assistance that you may require in the crypto asset sector.
Published 25 January 2021