Globally there has been an increase in the number of retail investors wanting to purchase crypto-assets. Unfortunately this has seen an exponential increase in the number “crypto-scams”. This is where unregulated entities and individuals promise unrealistic returns and lure in naïve or greedy investors.

As currently crypto-assets are unregulated, it makes it difficult for the South African authorities, namely the Financial Sector Conduct Authority (FSCA), to investigate and close suspected scams.

Last week the FSCA issued a draft declaration intended to give partial effect to some of the recommendations contained in the 2020 Position Paper by declaring crypto-assets a financial product under the FAIS Act.

The declaration would have the effect that any person furnishing advice or rendering intermediary services in relation to crypto-assets must 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.

Providing protection to investors

The FSCA has made it clear that this in no way “attempts to regulate, legitimise or give credence to crypto-assets” but rather is intended to provide some protection to investors.

It is important to note, however, that if a person invests through an unregulated entity, then no protection can be provided as the FSCA can only regulate those who are registered with the authority.

It is therefore important that anyone looking to invest ensures they are dealing with a FAIS complaint adviser or platform.

The manner in which crypto-assets can be regulated has been under consideration by National Treasury (NT) and relevant authorities for a number of years. Earlier in 2020 the Crypto-assets Regulatory Working Group (CAR WG) issued a Position Paper with recommendations relating to the regulation of crypto-assets.

According to the FSCA, “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 CAR WG which will inform future policy interventions to be implemented across a variety of regulators and laws.”

Interested parties are invited to submit comments on the draft declaration on or before 28 January 2021 to the FSCA at FSCA.RFDStandards@fsca.co.za, using the submission template available on the FSCA’s website.

This article first appeared in City Press.