South Africa Declares Crypto Financial Product, Subject to Financial Services Law

South Africa Declares Crypto Financial Product, Subject to Financial Services Law

Cryptocurrency companies in South Africa will need to apply for a licence between 1 June and 20 November 2023 in order to operate legally, the country’s financial conduct regulator said on Thursday. Recall that deputy governor Kuben Naidoo, had in July this year stated that the South African Reserve Bank plans to propose new rules on cryptocurrency trading in the nation within the next 12 to 18 months. South Africa has now declared crypto assets to be a financial product, according to a new notice from the country’s Financial Sector Conduct Authority.

Eugene du Toit, head of the regulatory frameworks division of the Financial Sector Conduct Authority, stated during a news conference on Wednesday that just because crypto assets are classified as financial products doesn’t indicate that they are legal cash.

A “digital representation of value” that is not issued by a central bank but can be traded, transferred, or kept electronically “for the purpose of payment, investment, and other types of utility” is what the notice refers to as a “crypto asset.”

The change, which is effective right away and is covered by the Financial Advisory and Intermediary Services Act of 2022, comes as governments all over the world work to more strictly regulate cryptocurrencies, particularly in light of recent price volatility and the failure of several significant crypto firms.

Financial watchdogs from all over the world are debating how to control the expanding universe of digital cryptocurrencies and tokens, the prices of which have plummeted from historic highs achieved in November of last year. Unathi Kamlana, the chairman of the regulator, explained that the FCSA purposefully avoided using the term “cryptocurrencies” because it does not consider them to be legal tender. He claimed that without the declaration, authorities would not be able to combat fraud related to tech financial product and safeguard customers.

As they behave more like traditional art investments, non-fungible tokens (NFTs) are not included by the proclamation, according to Kamlana, who also indicated they will keep an eye on the NFT market.

The disclosure and rules to be followed could aid South Africa in avoiding being placed on a “grey list” by the Financial Action Task Force due to weaknesses in its anti-terrorism financing and anti-money laundering system, according to the authorities. The governor of South Africa’s central bank warned that the nation faced the possibility of being placed on a “grey list,” which, according to IMF experts, last year reduced capital inflows by an average of 7.6% of GDP.

Kamlana said in an interview that increased regulation of financial institutions’ exposure to crypto assets and perhaps more client verification requirements are likely, but she would not specify when.

“South Africa is actually among the few countries that’s ahead of the curve in this space,” he said, when asked whether regulators had been slow to respond to the boom in interest in crypto assets in recent years.