Industry players have broadly welcomed the move by financial services sector authorities to regulate the crypto market, and are calling for a fair licensing process that considers smaller firms.
The Financial Sector Conduct Authority (FSCA) this week gazetted crypto assets as financial products, ushering in a new era of regulatory controls in the sector, which will enhance transparency.
Providers of financial services related to crypto assets are now required to apply for the relevant licence between 1 June and 30 November 2023.
The move came after years of a wait and see approach by authorities, as they were hesitant to regulate the crypto-currency industry.
This position was recently re-examined by the South African Reserve Bank and it is now working to introduce a regulatory framework to govern crypto transactions.
The FSCA’s announcement on Wednesday is being seen as the first step in the regulatory direction, and crypto players are pleased with the development.
Crypto service providers say this will now allow financial advisors to formally advise their clients on crypto investments.
Until now, financial advisors could not provide advice on unregulated investment opportunities.
“Classification of crypto as a financial product, which was anticipated following the publication of the Intergovernmental Fintech Working Group initial position paper, will help provide regulatory clarity to both investors and crypto asset service providers,” says Marius Reitz, Luno’s GM for Africa.
“The licensing requirements that will flow from this classification will drive high standards in the industry, particularly in relation to consumer protection, with potential investors easily able to identify those providers that satisfy regulatory requirements.
“Luno is delighted to see the development of the regulatory framework in South Africa progressing, and we look forward to further progress in the near future.”
Pragmatic move
David Porter, general manager at AltCoinTrader, says the move by the FSCA is a very positive step in the right direction as it provides long-awaited regulatory clarity.
“At least directionally we understand the regulator’s intentions; however, we await further clarity on the specific requirements and obligations relating to the impending licensing regime across the full spectrum of crypto asset service providers.”
Porter tells ITWeb that when considering how this may affect the crypto markets going forward, there are two key outcomes AltCoinTrader expects as the regulatory framework develops.
“The first is a reduction of bad-actors operating in the crypto industry, who we hope will get filtered out by a thorough licensing process. This will ultimately protect investors by giving them an easy way of distinguishing between legitimate crypto firms and those that aren’t. Financial authorities will also now have the legal backing to charge nefarious actors where necessary.
“Secondly, it has always been our view that regulatory clarity will assist in bringing crypto into the mainstream. With the declaration of crypto as a financial product, institutional and corporate investors will become more comfortable to ‘dip their toes’ into this nascent asset class and as an organisation we are committed to educate and serve this sector as they embark down this new road.”
Further, Porter says historically the average financial advisor has been fairly dismissive of crypto assets in favour of more traditional asset classes.
“We are already starting to witness some of the more progressive financial advisors taking notice of the asset class and ‘studying up’ on crypto in order to answer the inevitable questions from their clientele.”
However, Porter cautions that licensing requirements should not only favour the larger players, but also provide the scope for the smaller firms to operate and innovate in a responsible way.
“The Crypto Asset Association of South Africa has some members who are no bigger than a single employee, but who are innovating and solving some of the financial system’s most obvious shortcomings and have a lot of scope for growth. We hope they get the opportunity to do so under the new licensing regime.”
For Wiehann Olivier, partner and digital asset lead at Mazars in South Africa, now that the crypto assets class is a regulated financial product, investors must educate themselves to understand the technology and its associated risks.
“This will allow them to mitigate their risk while reaping the potential rewards that this revolutionary technology has to offer, putting them a step ahead of their peers.”
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