Financial Crime World

Cryptocurrencies Declared Financial Assets in South Africa Amid Rising Scams and Greylisting Threat

The Financial Sector Conduct Authority (FSCA) has issued a declaration that categorizes cryptocurrencies as financial assets in South Africa, paving the way for regulation and professionalization of the industry.

Background

The FSCA’s move comes in response to growing concerns over scams and fraudulent activities, as well as the threat of greylisting from the Financial Action Task Force (FATF). Greylisting is a process where countries are identified as high-risk jurisdictions and may face restrictions on international financial transactions.

Key Provisions of the Declaration

  • A “crypto asset” is defined as a digital representation of value that uses cryptographic techniques and distributed ledger technology.
  • Persons providing financial services in relation to crypto assets must be authorized under Section 8 of the Financial Advisory and Intermediary Services Act (FAIS Act) or appointed as a representative of an authorized FSP.
  • Failure to comply will result in a contravention of Section 7(1) of the FAIS Act, which is punishable by a fine not exceeding R10 million or imprisonment for up to 10 years.

Facilitating a Smooth Transition

To facilitate a smooth transition, the FSCA has published a general exemption that exempts any person from the requirement to be licensed, on condition that they apply for a license between June 1 and November 30, 2023. The exemption also requires compliance with Chapter 2 of the Determination of Fit and Proper Requirements for Financial Services Providers.

Draft Exemption

The FSCA has also published a draft exemption proposing to exempt licensed crypto asset FSPs and their representatives from certain requirements of the General Code and the Determination of Fit and Proper Requirements. One of the proposals is to grant a temporary 18-month exemption from regulatory examination requirements, allowing existing crypto asset FSPs and representatives to continue rendering financial services while they complete regulatory examinations.

The declaration, general exemption, draft exemption, and related policy documents can be accessed on the FSCA’s website. Submissions on the draft exemption are open until December 1, 2022, with a final exemption expected to be published early in 2023.