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Crypto intermediaries must now be licensed FSPs

FSCA proposes regulating crypto intermediaries as financial advisors.
The FSCA states that the draft declaration does not attempt to regulate, legitimise or give credence to crypto assets. Image: Moneyweb

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It’s been a long time coming, but it looks like the sheriff has finally arrived to the Wild West that is the crypto market.

On Friday, the Financial Sector Conduct Authority (FSCA) published a ‘draft declaration’ that defines crypto assets as a financial product under the Financial Advisory and Intermediary Services (Fais) Act.

This means that anyone giving advice or acting as an intermediary – such as a crypto exchange – would have to register as a financial services provider and comply with the requirements of the Fais Act.

This will include crypto asset exchanges and platforms, as well as brokers and advisors.

The FSCA declaration proposes improved disclosure to customers to highlight the “high risks in investing in crypto assets”. Those involved in crypto assets will have to adopt a more robust advice system, including proper risk assessments, when giving advice to purchase crypto assets such as bitcoin.

Crypto exchanges and other crypto intermediaries will henceforth be licensed as financial services providers. This licensing process will also improve the quality of data for policymakers and regulators about the crypto environment, “and to consider whether there is a need for further regulatory interventions,” according to a FSCA statement.

“The draft declaration in no way impacts the status of crypto assets in the context of other laws such as exchange control regulations, requirements under the Pension Funds Act and Collective Investment Schemes Act and so forth, nor does it attempt to regulate, legitimise or give credence to crypto assets.

“The draft declaration is merely intended to be an interim step in mitigating certain immediate risks in the crypto assets environment, pending the outcome of broader developments currently taking place through the Crypto Assets Regulatory Working Group (CAR WG), which will inform future policy interventions to be implemented across a variety of regulators and laws.”

Virtually all crypto exchanges in SA, anticipating such regulation was on its way, pre-emptively adopted Fais-type standards, including ‘Know Your Customer’ (KYC) processes prior to on-boarding new customers.

Position paper progress

The Intergovernmental Fintech Working Group, involving government, regulators and industry players, published a position paper in May 2020 to develop a regulatory framework for crypto assets, focusing on areas such as:

  • The implementation of an anti-money laundering and counter-terrorism financing regime,
  • A licensing and supervisory regime from a conduct of business perspective, and
  • A regulatory regime for the monitoring of cross-border financial flows.

The FSCA’s latest declaration on crypto assets gives partial effect to some of the recommendations contained in the May 2020 position paper.

“The FSCA acknowledges the impact that the draft declaration will have on businesses that are currently furnishing financial services in relation to crypto assets, and more specifically the fact that such business would not be able to operate legally unless they have obtained a FSP licence in terms of section 8 of the Fais Act,” says the FSCA. For this reason, various “transitional arrangements” for businesses already operating in this space will be put in place before publication of the final declaration.

Industry comments

Marius Reitz, Luno’s GM for Africa, says the crypto exchange welcomes the draft declaration of crypto assets as a financial product announced by the FSCA. “Cryptocurrencies are increasingly demonstrating the significant role they could play in the future of money.

“We support regulation of the industry, as it will provide consumers and professional service providers, such as banks and auditing firms, with the comfort that the company they are dealing with is held to defined regulatory standards and that licenced crypto asset providers have passed through a vetting process.

“Clear guidelines in South Africa (and globally) could lead to wider adoption by enhancing stability and trust in the market,” says Reitz.

“The SA Reserve Bank has taken a proactive approach by forming the Crypto Assets Regulatory Working Group (CARWG) and including industry in its discussions from the very beginning.”

Commenting on the proposed regulations, Jon Ovadia, founder and CEO of crypto company Ovex, says this will have a beneficial effect on the crypto sector

“We’re not surprised by this, as we knew it was coming. We’re excited by it. A big hurdle for us is not being regulated by the FSCA, which has deterred many people from getting involved in this sector.

“I think regulations will help bring credibility to the crypto sector and help weed out those involved in crypto scams,” said Ovadia.

“At present there is no sure way of knowing who is legitimate and who is operating a scam, and the people are understandably confused by this, so we see this as a positive development.”

Farzam Ehsani, co-founder of crypto exchange VALR, comments as follows: “VALR will always welcome prudent and appropriate regulation, particularly as it relates to consumer protection. We have been working with the South African regulators for many years to inform a regulatory framework that does exactly this. It is important to note, though, that today’s draft declaration of crypto assets as a financial product under the Fais Act by the FSCA was not one of the 30 recommendations in the Position Paper on Crypto Assets that was published by the regulators in April this year.

“Furthermore, all of the products in the Fais Act have a central issuer and crypto assets such as Bitcoin do not. Gold, for instance, is not classified as a financial product under the Fais Act. We look forward to engaging fully with the FSCA during the comment period to ensure a fair, relevant and appropriate regulatory position for the benefit of all South Africans.”

The public has until January 28, 2021 to comment on the draft regulations.

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Soon they will need to write RE exams, obtain CPD points, pay for liability cover, a compliance officer, do compliance audits, verify their client’s identities, determine the origin of funds, submit MLRO reports, licencing fees, submit financials, etc etc etc.

Fiat = public money
Crypto = private money

Laws should be made to serve the people. People should not be made to serve laws. Huey Newton

And what “Financial services” will be provided??? Fundamental analysis or something like that??? What qualifications should your FSP have??? And where do they get it from all of a sudden??

What a load of rubbish. They just want to get your data and your FSP will have to tell your caring ANC government how much tax you should pay. We are talking here about the same guys that cant figure out if Mirror Trading International is a scam or not. They have been at it for months now?? So this same useless crowd now decides what is best?? Whahaahahaaaa!!! Sounds like something Kiddy Amin would dream up.

Like everything else there are safer “jurisdictions” to trade crypto from as well so

#VoetsekANC

Although it is the stated objective, this move has nothing to do with the protection of clients and owners of cryptocurrencies. This is about the integrity of the financial system alright. This move also ensures that SARS receive their share of the pie.

The financial system depends on the legal tender laws that enforce fiat currency as a means of exchange. The Reserve Bank is the lender of last resort to the banking system. The Reserve Bank has the power to create fiat currency out of thin air, or alternatively, lower the interest rate on loans to the government, to save the banking system from systemic collapse. These methods will become useless if nobody uses the fiat currency. Cryptocurrencies are a threat to the integrity of the financial system, Therefore, they will have to be brought under the control of the Reserve Bank. The only future for crypto as a currency is if the Reserve Bank issues it because the Reserve Bank owns a monopoly on the issuance of currency.

IMF, World Bank, OECD, SARB and their fiat currencies win, crypto loses.

Crypto naysayers comments are like the stages of grief. First it was a joke, then a ponzi, then a scam, then bubble/mania and now its “threat to the integretity of the finnacial system”. Hahahaha. Make peace bro, you guys will buy my crypto at +$100K, I promise you-you will!

You are so correct. Can you picture a train that left the station and FSCA personnel running behind waving and shouting stop. The train is the crypto train. The FSCA and their clients that give this financial service milk the public dry. How do you want to regulate a system that you did not start?

The FSCA do not regulate crypto currency. Now they pretend to do that to protect the public. Or did they now see the money they can make? There is n new cow, a healthy crypto cow, they just have to milk that cow. I lost my respect for this body.

This is all about taxation: Paying real money for holding imaginary assets.

”If he can’t take it with him, he’s not going”

Bob Hope (1903- 2003)

And not a moment too soon ! This is number One, and the fun has just begun!

The difference between no-regulation in the Bitcoin market, and regulation in the rest of the financial markets, will be so big that a lot of these ”Bitcoin Cowboys”, will be forced to close their ”mom and pop-shops” – due to regulation and additional costs..all their claims of the ”mystical margins” that could be made, will in future be subject to the FAIS Act.

I will sit and wait for the ”Digital Euro”.

Crypto-assets are fundamentally different from central bank money: their prices are volatile because they lack any intrinsic value and there is no reliable institution backing them.

People using a digital euro would have the same level of confidence as with cash, since they are both backed by a central bank, which is something crypto-assets such as stable-coins cannot provide.

Looks like that crypto bubble is going to be popping soon.

TheSpark,

The Crypto bubble was suppose to collapse starting 10 years ago. Every year people said it was going to collapse, it is a scam, etc. However, currently this is the best performing asset. I think you will regret that you were not on the ship. Unfortunately, it has limited seats and I think potentially limited window for climbing on.

Given the BTC Global and Crowd1 nonsense…..soon MTI will join the pile of Bitcoin ‘investment’ scams and people will be left destitute, perhaps some form of regulation or oversight is required, what that oversight might entail Im not too sure but there needs to be accountability for those peddling this rubbish

(Note) im not calling Bitcoin rubbish but schemes peddled as Bitcoin ‘investment’

Bobby Dollar, the average in trading with MTI is around R20,000 per person and most people already pulled their profits out. You have no idea to know that, and why do you care? So the FSCA must protect people that trade with R20,000 of their gains. Catch a wake up man.
The FSCA pretend they care about the people, they care about themselves that stand to loose out.

“Most people pulled profit out” Very unlikely, why would you pull your money out when you being sent weekly statements saying your “investment” is up 9000000000 %, its like tossing your winning Lotto ticket in the bin because you have enough money in the bank already. Calm down Cheri, soon it will all be over.

All these people that think crypto is freedom : you do realize that whether you made a profit trading cattle or crypto you are on the same legal responsibility to declare that profit for tax purposes?

I can very easily go and buy almost anything that I think is a bargain and hope SARS does not pick me up when I don’t declare the profit I made when I convert those cattle / Rolex watches / cars to something useful, like cash,

My first attempt to acquire Bitcoin did not go so well 🙁

I started off writing out a CHEQUE to Luno Exchange, and then they did not have a Facsimile number to send proof of payment to.

I think the my bet is to get one’s grandchild to do it for me.

I’m not even a “late adopter” , but worse…I’m a “Failed Adopter”.

I will slap you dead with Snapscan! Tapping away.

End of comments.

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