On 19 October 2022 the Financial Sector Conduct Authority (FSCA) issued General Notice 1350 of 2022 (“Declaration”) in terms of which it declared a crypto asset as a financial product under the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS Act).

We spoke to James George, Compliance Officer Manager at Compli-Serve, for his insights on what this means for finance professionals.

Clarity has been provided on the effect of the Declaration, including transitional provisions, and the approach the Financial Sector Conduct Authority is taking in establishing a regulatory and licensing framework under the Financial Advisory and Intermediary Services Act, applicable to Financial Services Providers who render financial services in relation to crypto assets.

Financial services providers are required to apply for the relevant licence between 1 June 2023 and 30 November 2023, giving them some time to prepare for this licence application process as well as the more comprehensive regulatory regime.

The Declaration states 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;
   
• or be appointed as a representative of an authorised FSP under section 13 of the FAIS Act;
   
• comply with the requirements of the FAIS Act and its subordinate legislation.
   

Anyone 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. Such a contravention constitutes an offence in terms of section 36(a) of the FAIS Act. Anyone 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.

The FSCA also published a general exemption of persons rendering financial services (advice and/or intermediary services) in relation to crypto assets from section 7(1) of the FAIS Act. The purpose of this exemption is 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 period specified as above. The exemption is also subject to further conditions as specified in the exemption. The exemption will apply until the licence application submitted has been approved or declined; and
   
• 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 only rendering financial services in relation to non-fungible tokens.
   

It is important to note that the Declaration does not apply to or affect financial services rendered in relation to crypto asset derivatives. FSPs providing financial services in relation to crypto asset derivatives are already subject to the requirements of the FAIS Act.

Lastly, the FSCA published a Draft Exemption of Persons rendering Financial Services in relation to Crypto Assets from Certain Requirements for public comment. The draft 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 and the Determination of Fit and Proper Requirements, 2017.

Documents Issued by Financial Sector Conduct Authority:

1. Declaration of a Crypto Asset as a Financial Product under the Financial Advisory and Intermediary Services Act, 2002; and

2. Policy Document supporting the Declaration (“including Annexure A – Response matrix to the draft Declaration); and

3. Exemption of Persons Rendering Financial Services in relation to Crypto Assets from section 7(1) of the FAIS Act; and

4. Draft Exemption of Particular Persons rendering Financial Services in relation to Crypto Assets from Certain Requirements; and

5. Comment Template to draft Exemption of Particular Persons rendering Financial Services in relation to Crypto Assets from Certain Requirements

Thanks to James George, Compliance Officer Manager at Compli-Serve, for his expertise and assistance on this piece.