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South Africa Classifies Crypto Assets as a financial product

28 October 2022

On 19 October 2022, the Financial Sector Conduct Authority (“FSCA”) released a notice (accompanied with its policy document) to include crypto assets as a financial product under the Financial Advisory and Intermediary Services Act, 2022 (“FAIS Act”). This move, effective immediately, marks a new chapter for South Africa, where crypto assets are regulated and consumers are more protected than before.

On November 2020, the FSCA had published a draft declaration of a crypto asset for financial products (accompanied with its policy document) under the FAIS Act for public comment. After reviewing the responses, the FSCA published the final declaration. 

Crypto assets description   

Not issued by a central bank but is capable of being traded, transferred, or stored electronically by natural and legal persons for payment, investment, and other forms of utility; applies cryptographic techniques; and uses distributed ledger technology.

Crypto Asset service providers

The FSCA will be regulating and licensing Financial Services Providers (“FSPs”) that provide financial services in relation to crypto assets. Also including any person giving advice or servicing as an intermediary.

The FSCA, will support a smooth transition into the FAIS framework and will allow providers of financial services related to crypto assets to apply for the relevant license between 1 June 2023 and 30 November 2023.

Participants exempted from the FAIS Act

  • Crypto asset miners
  • Node operators performing functions in respect of the security health of the network
  • Persons only rendering financial services in relation to non-fungible tokens

Crypto asset derivatives

Providers of crypto asset derivatives remain subject to the Financial Markets Act, 2012 (Act No. 19 of 2012).

Cryptocurrency adoption in South Africa

A report published by Chainalysis in September 2022 showed that South Africa ranked 30th in worldwide cryptocurrency adoption index, however, South Africa was classified as 16th over 154 countries in 2021 by the “2021 Geography of Cryptocurrency Report” - Chainalysis. 

South Africa’s recognition of crypto as an asset class ranks above countries such as France, Spain and the Netherlands, which means that having a regulatory framework on crypto assets will increase the country’s attractivity for end customers.

A link with FATF

As a member of the Financial Action Task Force (“FATF”), South Africa must adhere to the recommendations put forward by this international body in order to remain off its grey list. In 2019, FATF noted that South Africa had deficiencies in the supervision, licensing, and registration of Virtual Assets and Virtual Asset Service Providers. The introduction of a crypto-asset specific regulatory framework is an important step towards addressing the earlier findings by FATF.

How Apex can help

  • CO/MLRO-(Crypto-VA)
  • Crypto AML & CO Oversight Support Services
  • Crypto-assets due diligence services
  • Crypto/Virtual asset/ VASP-CASP licensing
  • Crypto/ VA and blockchain Training
  • VASP/CASP Due Diligence
  • Crypto AML business risk assessment templates

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