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  • Proposed new rules will require that anyone selling crypto assets must be authorised under the FAIS Act.
  • Currently, cryptocurrency services are not regulated at all in South Africa.
  • In future, intermediaries and platforms will have to comply with much stricter rules.
  • For more articles, go to www.BusinessInsider.co.za

The Financial Sector Conduct Authority (FSCA) has published new draft rules that may up-end cryptocurrency selling in South Africa.

There’s currently no protection for South Africans who buy cryptocurrencies, and these currencies are not regulated. The country has seen numerous cryptocurrency-related scams, with South Africans losing millions.

While still not regulating crypto assets, authorities now want to regulate the services relating to cryptocurrencies. According to the new proposal, crypto assets will be declared as financial products under the Financial Advisory and Intermediary Services Act.  

Any person furnishing advice or rendering intermediary services in relation to crypto assets will have to be authorised under the FAIS Act as a financial services provider, and must comply with the requirements of the FAIS Act. This will include crypto asset exchanges and platforms, as well as brokers and advisors, says the FSCA.

This means the entities will have to take part in an onerous process to prove their financial soundness and operational ability, and those involved will be evaluated by the FSCA on their personal character and competence including experience, qualifications and knowledge.

They won’t be able to sell crypto without a financial services provider licence– if they’re caught, they could be prosecuted. And intermediaries will have to substantiate why they recommended that their clients should invest in cryptocurrencies.

“It is envisaged that implementation of the draft Declaration will result in improved disclosures to customers that more effectively highlight the high risks involved in investing in crypto assets and should also ensure that a more robust advice process is adopted (including proper risk assessments) when intermediaries decide to advise customers to purchase crypto asset,” the FSCA said in a statement.

The FSCA stressed that the new rules are not meant to “regulate, legitimise or give credence to crypto assets” – instead it seeks to mitigate “certain immediate risks” in crypto assets.

Recently, the FSCA raided Mirror Trading International, which accepts clients’ funds in the form of Bitcoin, which are then used to trade foreign currencies. MTI claims to have more than R2.9 billion in clients’ funds in trading accounts, but the FSCA says it has not been able to “conclusively confirm” that the funds exist. In another recent cryptocurrency scam, 2,000 investors lost R277 million by "investing" in VaultAge Solutions, which purchased cryptocurrency on their behalf.

The FSCA’s director of investigations and enforcement Brandon Topham recently went as far as saying that, in his opinion, “anything to do with a crypto is highly suspect and nobody should be invested in anything form of cryptocurrency or any of the products that go with it”.

READ | Anything to do with crypto is highly suspect, says SA's financial watchdog

The FSCA’s proposed new rules will form part of more “policy interventions” proposed by a working group on crypto assets, which also include the Reserve Bank and other parties.

Comments on the draft declaration must be submitted by 28 January 2021 to the FSCA at FSCA.RFDStandards@fsca.co.za, using the submission template available on the FSCA’s website at www.fsca.co.za.

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