Crypto Assets

On 19 October 2022 the FSCA declared Crypto Assets a “Financial Product” under FAIS (Financial Advisory & Intermediary Service Act bringing these assets under regulation in South Africa for the first time.

Definition of Crypto Assets

a digital representation of value that –

(a) 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;

(b) applies cryptographic techniques; and

Effects of 19 October 2022 Declaration

Clarity is now provided on the effect of the Declaration, including transitional provisions, and the approach the FSCA is taking in establishing a regulatory and licensing framework under the FAIS Act that would be applicable to Financial Services Providers (“FSP”) that render financial services in relation to crypto assets.

To support a smooth transition into the FAIS framework, providers of financial services are required to apply for the relevant license between 1 June 2023 and 30 November 2023, meaning that they have some time to prepare for this license application process and the more comprehensive regulatory regime.

The FSCA also published a general exemption of persons rendering financial services (advice and/or intermediary services) in relation to crypto assets from section 7(1) of the FAIS Act. The purpose of this exemption is to –

• further facilitate transitional arrangements for existing providers of crypto asset activities. The transitional arrangements entail that a person may continue to render financial services in relation to crypto assets without being licensed, provided that such person applies for a licence under the FAIS Act within the period specified as above.

• exempt certain ecosystem participants from the FAIS Act. These participants are 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.

The exemption will apply until the licence application submitted has been approved or declined.

It is important to note that the Declaration does not apply to or affect financial services rendered in relation to crypto asset derivatives. FSPs providing financial services in relation to crypto asset derivatives are already subject to the requirements of the FAIS Act.

Lastly, the FSCA published a Draft Exemption of Persons rendering Financial Services in relation to Crypto Assets from Certain Requirements for public comment. The draft exemption proposes to exempt licensed Crypto Asset FSPs and 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.

How can we help you?

We can assist you with all your preparations.

· Ensuring that you have an appropriate RMCP in place that addresses all the necessary legislation in place and the new proposals from the FATF.

· Ensuring you have a robust EDD process in place to to check prospective clients against all required checklists.

· Ensuring that progress made by the FSCA in respect of Crypto licensing is conveyed to you timeously and that you are prepared when crypto-licensing begins.

Tightening AML/CFT regulation and enforcement to DeFi and Cryptocurrency Industry is an inevitable general trend. The sooner the Virtual Asset Service Providers adopt measures to comply with the expected inaugural AML/CFT regulations, the better and more well-prepared they will be for the compliance procedures and controls.