Cryptocurrency regulation has reached South Africa, where the Financial Conduct Authority (FSCA) has declared cryptocurrencies to be financial products.
Crypto service providers must apply for licenses between June 1 and November 20, 2023, or face criminal prosecution and a fine of 10 million Russians.
Anyone who provides crypto services or sells crypto assets must have a Financial Services Provider (FSP) license.
Customers can now submit complaints to the Financial Advisory and Brokerage Service (Fais) Ombudsman.
Speaking to the media on Thursday, FSCA Commissioner Onati Kamlana said one of the main reasons for the introduction of the rules was to protect consumers from the alarming number of crypto-related scams that have increased in recent years.
There has been aggressive marketing of cryptocurrencies by bad actors and controls are needed to improve the quality of advice given to consumers. “The result [a] very high risk of [cryptocurrency] selling badly. There are widespread accusations of fraud and deception. The case for regulatory intervention is a good one,” Kamlana said.
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It's not a legal tender
The definition of a crypto asset published by the FSCA on Wednesday, October 19, is that it uses encryption technology and a distributed ledger and “is not issued by a central bank, but can be exchanged, transferred or stored electronically depending on the nature and legal entities.” for payment, investment and other types of services .
This does not mean that crypto assets are legal tender, as only Banco de Reserva SA (Sarb) can determine this.
Kamlana said that there is a huge obstacle to this [declaring cryptocurrency as legal tender].
“We do not call them cryptocurrencies because, in our opinion, they do not meet the four criteria of a fiat currency or fiat: being a store of value, a unit of account, an acceptor, and a medium of exchange.”
Exceptions
Eugene du Toit, head of the FSCA’s regulatory framework, said the rules do not affect crypto-derivatives, which are already covered by the Financial Markets Act and the Faiss Act.
“Currently, the space is unregulated and its goal is to better protect financial clients and create a more responsible and stable cryptocurrency industry,” Du Toit added.
Mining node activities and node operators are also exempt from the regulations because they do not provide services to the general public, such as non-fungible tokens (NFTs), which are digital certificates owned by artwork and other property.
Buying digital art is not the same as buying a painting. "They are currently excluded, but will be monitored in the future," Du Toit said.
"Honest and good faith" is required.
Crypto companies have until November 2023 to apply for FSP licenses, plenty of time for the industry to transition to new transactions.
This means that they must immediately comply with the Fais general code of conduct regarding honesty and integrity and must be in good standing. They are expected to provide financial services "with honesty, integrity, skill, care and diligence".
The new rules should be viewed in conjunction with other laws and regulations, such as the South African Reserve Bank's capital export rules and annual restrictions on investing in South Africans abroad. Also, as mentioned above, cryptocurrency derivatives are subject to the Financial Markets Act.
Cryptocurrencies are still banned from pension and retirement funds subject to Section 28 of the Pension Funds Act.
The level of protection for cryptocurrency investors is now the same as for mutual funds and other financial products.
"This announcement means we can fight fraud in a more visible way," Kamlana said. As for cryptocurrency fraud, it is difficult to regulate or control. “We will continue to fight to protect [people] who are trapped by schemes where people have been promised to double their money in a matter of weeks.”
Charles Gill, Head of Anti-Money Laundering and Counter-Terrorist Financing at the FSCA, said the crypto announcement was a positive step from the SA’s perspective and should mitigate the threat of the Financial Action Task Force (FATF) gray list, which could lead to divestitures due to the risk of colliding with the SA. .
Read: Controversial Bill Aims to Suppress Cryptocurrency for Terrorist Financing
Next steps
The tax is generic in nature and more regulations are being considered to better protect consumers. In the future, this could mean excluding cryptocurrencies from the Fais Act.
This includes the regulation of stablecoins and cryptocurrencies that look like securities: for example, security tokens (such as partial ownership of shares, property or artwork issued as tokens). Cryptocurrency investments are also processed by financial institutions, a comprehensive approach to crypto regulation is adopted through the Financial Institutions Conduct Act, and potential regulatory and supervisory directives under the FSCA.
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