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FSCA apologises to Ovex, says company does not require a financial services licence

‘As its business activities fall outside the current jurisdiction’ of the financial regulator.
Image: Moneyweb

The Financial Sector Conduct Authority (FSCA) has closed its investigation into Ovex (Pty) Ltd, conceding in a statement issued on Friday morning that the company does not require a financial services licence currently.

This after the financial watchdog, which is grappling with how to regulate the cryptocurrency sector, found itself with egg on its face after having to withdraw a statement issued on Thursday related to Cape Town-based Ovex.

Read: [UPDATE] FSCA issues and withdraws warning on Ovex crypto exchange

In its latest brief statement on the matter, the FSCA says while it has previously warned the public that Ovex Pty Ltd does not have a financial services licence, it has now received the necessary information in order to finalise its preliminary investigation.

“Based on the information provided by Ovex we are satisfied that Ovex does not currently require a licence from the FSCA, as its business activities fall outside the current jurisdiction of the FSCA,” the financial regulator adds.

The FSCA reiterated that its previous media release has been retracted.

“The investigation is closed and we apologise for any inconvenience caused as a result of the warning,” its latest statement notes.

Ovex offers a crypto arbitrage service.

Jon Ovadia, Ovex’s CEO took exception to the FSCA’s initial statement on his company’s business operations on Thursday, saying the warning was damaging to the business and issued without giving the company time to respond to questions sent earlier in the week.

He anticipated that the FSCA would issue a full retraction.

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COMMENTS   17

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Cant have FSCA regulate something they dont understand.

In typical anc fashion everything will stop functioning.

Best to take crypto offshore as well. Same as everything else!!!!!

Idiots!!!!!!!!!!!

And when they don’t act – MTI – they’re also idiots and get criticized for sitting on their hands. They seem to be in a damned if you do, damned if you don’t situation.

In this case, with the advertisements blatantly talking about a 4% return per week, and then promising that there was no risk either, one can’t blame the FSCA for investigating. I still think this is highly risky and disingenuous at best, and I’ve said so for weeks – long before yesterday.

What you “think” is immaterial.

The FSCA MUST be blamed for their mistake.

Why else would they apologize?????

They were wrong and if it is damaging to someone’s business (even someone “investing” in Crypto) its still not right because You think it right??

It was WRONG!!!

Moneyweb can clarify the matter by giving readers more detail on why the FSCA made this unfortunate mistake and why Ovex does not need an FSCA license.

The answer is simply that Crypto is not defined as a “Financial Instrument”in terms of the FAIS act and hence falls outside the jurisdiction of the FSCA. Oddly, on 20 November 2020, the FSCA issued a “STATEMENT IN SUPPORT OF THE DRAFT DECLARATION OF CRYPTO ASSETS AS A
FINANCIAL PRODUCT UNDER THE FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT ” – which they seem to have forgotten about.

I hear you Paulie, but if I arbitrage commodities like wheat in the physical market and I advertise to clients that they will receive a yield at a future date then I have to be registered as an FSP. If I sell a commodity for an immediate settlement then I don’t have to be registered, but when I claim that the participant can make a profit from his dealings then it is a financial product.

Anybody can sell a tomato, but when that person takes deposits from the general public and promises a dividend or yield sometime in the future, then he is giving financial advice.

@ sensei

The arbitrage exists since we have exchange controls and is a simultaneous offshore purchase and a local sale with spreads up to 5% depending in volatility.

>Anybody can sell a tomato, but when that person takes deposits from >the general public and promises a dividend or yield sometime in the >future, then he is giving financial advice.

Your point is valid, but as the entity being dealt with is an unregulated entitity, the FSCA has no jurisdiction. It is like hedge funds in the early days of FAIS as well as property syndications. The FSCA said they have no jurisdiction on property syndications – the Department of Trade and Industry has – despite these syndications being run as deposit-taking entities (that actually fell foul of the Banks act) and selling to the geenral public.

Cool. Now we can all go big and bet our pensions and kids’ college funds on the risk-free 4% per month returns.

🙂 Agreed! Very reassuring to hear that they have designed their business model to evade rules and regulations. My RA funds are headed over to ovex

FSCA is confused and in return confuses the public. I thought they are there to regulate the advice and trade involving financial instruments. As per accounting standard IAS 32 definition of a financial instrument, ie a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity, Bitcoin sounds like a financial instrument. An investor hands over his/her BTC to Ovex to participate in the arbitrage trade. I think that creates a liability in the hands of Ovex. Ovex then decides when to buy and sell at what price overnight. In my view this process fall under the ambit of FSCA mandate. Maybe this requires a deeper thinking by the academics to help clarify what Bitcoin is in SA and be descriptive about whether FCSA must regulate or not regulate any trade that has to do with it.

SARS is already recognising Bitcoin as an asset.

Same as us Tax consultants & accountants…we do not fall under the FSCA, despite that we deal with financial services. (we have our own controlling bodies)

Having said that, the FSCA needs a more clear organisational description. It should simply be called “Financial SALES COMMISSION Authority”

If you earn commission from selling financial products, then you fall under the scope of the FSCA.

Cryptos? No commission involved. Not part of FSCA. Simple. (…so people dealing with crypto will simply have to accept it’s an UNregulated sphere they enter into.)

And if you lose money through a crypto product you did not understand, you cannot run to the FSCA. You’ve accepted the unregulated risk from the outset.

But hey, maybe we’ll see a light of a “CBCA’ one day? a Cryptography & Blockchain Conduct Authority 😉

I made 100% on Dogecoin a few days ago. And that’s REALLY a crypto with no utility or value. A sure sign of unrealistic euphoria and a coming crash. Beware anyone with either fiat or crypto on a so-called crypto exchange when that happens. It’s going to be very very bloody out there.

On Ovex the actual returns are about 10% a month, but again, when the crash comes your funds and USD Tether are all on Ovex and are at risk. I’d warn against any of these arbitrage operations at this point, although there are some that return ZAR to your account after each trade which derisks in between trades.

But if you’ve got the guts do it quickly – put in R500,000 and roll it 22 times to use your entire R11m of allowances. In 7-8 weeks you will be out with profit of R250,000 pre tax (50%) and free to put that money into something else. But if the crash comes in between you’ll probably lose it all – not in the arbitrage trades but when the exchange crashes.

My thoughts only… certainly not an expert but feeling quite smart following a few weeks of good gambles.

Very simple. Crypto assets do not fall within the definition of “financial product” under the FAIS Act nor “security” under the Financial Markets Act. Nor is it defined under the Financial Sector Regulation Act. Accordingly, those acts do not apply to persons advising or acting as an intermediary in respect of crypto assets (such as Ovex) or to persons that essentially operate an exchange (such as Luno or VALR).

FSCA has issued a paper setting out its intention to include crypto assets in the definition of “financial product” under FAIS. If is is promulgated then depending on the final wording parties such as Ovex would probably need to be licensed. However, the real risks lie with ZAR crypto trading platforms which have carte blanche and would be closed down if they were to operate in accordance with the requirements of a regulated exchange.

Wait a few weeks. It will require a license.

The FSCA should be sued for the loss in income as a result of their statement/investigation. This should teach them a lesson to do their homework more thoroughly before issuing false warnings.

Then what Act are they regulated by ? Must be something . Bank Act , Consumer Act ? If it’s a consumer Act then all products should have a 12 month guarantee………could be interesting !

End of comments.

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