Crypto Asset Providers will need to apply for an FSP licence
The Financial Sector Conduct Authority (FSCA) declared crypto assets to be financial products with immediate effect from 19 October 2022.
According to FCSA, about 10% of Crypto Assets Financial Service Providers operating in South Africa have their head offices in foreign countries. FCSA says a physical presence will ensure appropriate oversight and accountability.
- The Financial Sector Conduct Authority (FSCA) in South Africa has declared crypto assets as financial products under the FAIS Act due to increasing risks and fraudulent activities in the crypto asset environment.
- The declaration aims to address deficiencies identified by the Financial Action Task Force (FATF) and establish a regulatory regime for financial service providers (FSPs) dealing with crypto assets.
- FSPs providing financial services related to crypto assets must obtain a license and comply with FAIS Act requirements, with a temporary exemption provided for a transition period until license applications are processed.
Licencing and transitional arrangements
The Declaration has the effect that any person who, as a regular feature of their business, renders financial services (as defined in section 1 of the FAIS Act to include advice and/or intermediary services) in relation to crypto assets, must:
- either be authorised under section 8 of the FAIS Act as a financial services provider (FSP) or be appointed as a representative of an authorised FSP under section 13 of the FAIS Act; and
- comply with the requirements of the FAIS Act and its subordinate legislation.
Any person who, as a regular feature of their business, renders financial services in relation to crypto assets without a licence will be in contravention of section 7(1) of the FAIS Act, unless exempted. Such a contravention constitutes an offence in terms of section 36(a) of the
FAIS Act and a person found guilty of such an offence is, on conviction, liable to a fine not exceeding R10 million or imprisonment for a period not exceeding 10 years, or both.
To facilitate the transition, the FSCA has also published a general exemption from section 7(1) of the FAIS Act alongside the Declaration. The exemption is a temporary exemption that exempts any person from the requirement to be licenced, on the condition that such person must:
- Apply for a licence under section 8 of the FAIS Act between 1 June 2023 and 30 November 2023. This means that a person currently rendering financial services in relation to crypto assets can continue to do so without contravening the FAIS Act, provided that a licence application is submitted within the stipulated period. The exemption will remain valid until the person’s licence application has been approved or rejected. If a person does not submit a licence application within the stipulated period, the exemption lapses.
- Immediately comply with Chapter 2 of the Determination of Fit and Proper Requirements for Financial Services Providers, 2017 published under FAIS Board Notice 194 of 2017 (“Determination of Fit and Proper Requirements”), which sets out the honesty, integrity and good standing requirements that apply to all FSPs, key individuals and representatives.
- Immediately comply with section 2 of the General Code of Conduct for Authorised Financial Services Providers and Representatives, 2003 (General Code) as if it is a licenced FSP. Section 2 of the General Code provides that an FSP must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.
- Comply with the rest of the General Code by 1 December 2023.
- Provide the FSCA with any information that the FSCA requests that it is in the possession of, or under control of, the person, that is relevant to the financial services and/or similar activities rendered by such person.
The general exemption also exempts certain crypto asset 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.