South Africa companies that provide financial services are to give customers with goods and services related to cryptocurrencies.
On October 19, South Africa’s Financial Sector Conduct Authority revised its financial advisory legislation from 2002, categorizing crypto assets in the country as financial products. This development comes as a direct result of that amendment. The most crucial implication of this definition is that companies that provide financial services in South Africa can now legally sell cryptocurrencies to their customers, regardless of whether the companies are based in South Africa or not.
It is anticipated that as many as six million people in South Africa are now using cryptocurrencies for retail purchases. South Africa already has a growing number of bitcoin users. The country’s Reserve Bank has also taken a balanced approach in its regulatory attitude toward the sector to maintain investor protection without stifling innovation. This was done to prevent any unnecessary restrictions.
The Chief Executive Officer of VALR, Farzam Ehsani, referred to the action taken by the FSCA as “Good news for South Africa setting a path towards regulating crypto asset service providers in the country.” He also emphasized the importance of ensuring that these providers “are serving the public with integrity. Marius Reitz, general manager for Africa at Luno, reiterated these comments and emphasized the significance of regulatory certainty, not just for investors but also for providers of financial services in the country:
“The licensing requirements that will flow from this classification will drive high standards in the industry, particularly about consumer protection, with potential investors easily able to identify those providers that satisfy regulatory requirements.”
Reitz also brought up the most important benefit, which is that financial advisors are now legally allowed to advise their customers on the purchase of cryptocurrencies. Financial advisors were not allowed to offer advice on unregulated investment opportunities before the FSCA amended the definition of crypto assets.
“The regulatory framework paves the way for wider institutional adoption. How this plays out will depend on the ability of more traditional finance companies and even banks to be able to fully support this newly classified financial product.”
Chris Becker, cyberbanking managing executive at Tyme Bank, also provided insights. The South African digital bank applauded the idea to regulate cryptocurrencies within existing frameworks as it strives to drive digital money services and payments.
Becker feels the move could bring some reassurance to individuals that may have been apprehensive of working with crypto asset service providers due to fears about a lack of regulation, having worked with private wealth manager Investec as its blockchain lead in his previous capacity.
Becker also acknowledged that the regulatory action may help broader adoption in the long-term if financial service providers use the new product category to provide crypto asset products to their huge customer bases.Nevertheless, regulatory uncertainty has not stopped corporates and institutions from getting exposure to cryptocurrencies in South Africa. Both exchanges already operate with some institutional clients.
VALR services more than 700 corporates and institutions, which includes several big traditional finance institutions in South Africa. Ehsani said the firm has been focusing on creating its infrastructure for the past five years to bridge traditional finance in the country to cryptocurrency marketplaces. Luno also allows business customers to use its platform. Meanwhile, Becker emphasized the possibility that traditional financial service companies may not necessarily invest in cryptocurrency as a result:
“Other regulations such as the Pension Funds Act and the Foreign Exchange Control Act do not yet make provision for crypto assets yet.”
The CEO of VALR also thinks that in the next months, as regulatory monitoring becomes clearer, the nation may witness the development and release of exchange-traded funds (ETFs) and other financial instruments associated with cryptocurrencies:
“I think we’ll start seeing many more financial products related to crypto soon. Many people have been working on this for some time and now with the Declaration, we should expect to see much of this work become visible to the public.”
Reitz provided a more sober analysis of the situation, pointing to the FSCA declaration as the first step in establishing a comprehensive regulatory framework for crypto assets in South Africa. He argues that greater clarity is required regarding the regulation’s broader application to approved bitcoin financial products and uses America’s perspective as an example:
“In the United States, Bitcoin ETFs can only hold BTC futures contracts or stocks of companies and another ETFs with exposure to cryptocurrencies as the SEC continues to evaluate the approval of ETFs that own BTC directly.”
In contrast, the FSCA offered a more depressing message during a news conference that went along with the announcement on October 19. FSCA Regulatory Frameworks Department head Eugene Du Toit made it plain that cryptocurrencies are not accepted as legal money in South Africa, as Reuters initially reported.To safeguard local investors, the regulator emphasized the significance of being able to deal with scams and other fraudulent practices in the industry.
