Good day everybody,
Welcome to CryptoGod-1's blog on all things crypto. Today I am going to do a quite write up regarding the recent announcement from South Africa regarding Crypto and how they are being considered financial assets.
Decleration
On the 19th of October 2022, a notice was released regarding cryptocurrencies by the Financial Sector Conduct Authority (“FSCA”). It outlined how Crypto is defined in South Africa, with it considered a “digital representation of value” that is not issued by a central bank but can be traded, transferred or stored electronically “for the purpose of payment, investment and other forms of utility. This is covered under the Financial Advisory and Intermediary Services Act, 37 of 2002, and published in Government Notice 1350 in Government Gazette 47334.
The declaration is enforced immediately, and comes in the aftermath of governments around the world attempting to regulate the crypto space, especially from fraudsters. The Declaration has defined crypto assets as a digital representation of value that –
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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;
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applies cryptographic techniques; and
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uses distributed ledger technology.
What Does this Mean for Crypto in South Africa
Currently South Africa ranks 30th worldwide for cryptocurrency adoption, according to the Chainalysis 2022 Global Crypto Adoption Index, which was published in September. Considering the population of South Africa was recorded as 60.6 million people in June 2022, this is a significant market and position for them to be in the worldwide rankings. Roughly about 10-13% of the South African population are crypto holders, meaning 6.6 to 7.9 million people are involved in crypto within the country.
Financial regulators within the country concerned with crypto assets will now fall within the regulatory jurisdiction of the FSCA. The wider effect of this is that any entities regulated by FAIS often have to comply with other financial sector laws which are enforced by the FSCA, which may now apply to any person furnishing advice or rendering intermediary services in respect of crypto assets.
The aim is to regulate and ensure the space is governed, as according to Marius Reitz, general manager for Africa at Luno:
“The licensing requirements that will flow from this classification will drive high standards in the industry, particularly in relation to consumer protection, with potential investors easily able to identify those providers that satisfy regulatory requirements.”
This has come about after a review of the space announced in 2020, meaning people who were once exempt from the application of section 7(1) of FAIS will no longer be. Anyone involved with the financial service, advice, or administration of crypto based services in South Africa will need to be aware of this. There is a general exemption, which applies until the relevant licence application under the FAIS Act has been approved or declined. The relevant licence applications must be submitted between 1 June 2023 and 30 November 2023.
The press release on the 20th of October 2022 it was outlined by the FSCA that the reason for the exemptions are as follows:
- 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 above period specified in the exemption.; and
- To 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 rendering financial services in relation to non-fungible tokens[1].”
The FSCA also announced the following additional key points:
- A Draft Exemption of Persons rendering Financial Services in relation to Crypto Assets from Certain Requirements (“Draft Requirements Exemption”) has been published for the sake of efficiency in facilitating the application of an appropriate regulatory framework for Crypto Asset FSPs once they are licensed.
- The Draft Requirements 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 (“General Code”) and the Determination of Fit and Proper Requirements, 2017 (“Fit and Proper requirements”).
- However, it is important to note that the requirements contained in the General Code and Fit and Proper requirements will apply to all Crypto Asset FSP’s once they are licensed, except those requirements that they are exempted from in terms of the Draft Requirements Exemption.
If you are in South Africa or anyway involved with crypto assets in South Africa, it is important to understand these changes to the regulations.
For the rest of us, it is an interesting step which has been taken, and further shows how governments are determined to ensure they have a regulation in place for crypto assets.
Have a great day.
Peace. CryptoGod-1.
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