BUSINESS LAW &TAX
NOVEMBER 2022 WWW.BUSINESSLIVE.CO.ZA
A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW
New world: crypto assets now financial products
DIFFERENT SIDES TO THE SAME COIN
Service providers will have to apply for a licence •from 2023 to bring them into the regulatory net Angela Itzikowitz, Era Gunning, Jessica Blumenthal, Johan Loubser & Talia Cullinan ENSafrica
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rypto assets have been on the radar of the SA regulators for quite some time. “Our view has changed and we now do regard [cryptocurrency] as a financial asset and we hope to regulate it as a financial asset,” said Reserve Bank deputy governor Kuben Naidoo on July 13 during a webinar. Three changes were proposed, namely: ● An amendment to the Exchange Control Regulations to clarify the position on crypto assets as capital within the purview of those
regulations; ● The inclusion of cryptos as a financial product for purposes of the Financial Advisory and Intermediary Services Act, 2002 (Fais); and ● The inclusion of all crypto asset service providers as “accountable institutions” in terms of Schedule 1 to the
IT’S WORTH NOTING THAT CRYPTOASSETS ARE THE ONLY FINANCIAL PRODUCT WHERE THERE IS NO CENTRAL ISSUER Financial Intelligence Centre Act, 2001 (Fica). The first of these amend-
ments was to Fais and after much deliberation the Financial Sector Conduct Authority (FSCA) has declared crypto assets as a financial product, as defined under Fais. Fais governs the rendering of financial services (advice and/or intermediary services), as those terms are defined in Fais, in respect of financial products in SA. “Financial product” is defined to include a share, insurance policy, debenture, note or other security, and a “deposit”, as that term is defined in section 1(1) of the Banks Act, 1990. Crypto assets will now be included in this definition. What is considered to be a crypto asset by the FSCA? “Crypto asset” has been defined as “a digital representation of value that:
/123RF — YOURG ● Is not issued by a central bank but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility; ● Applies cryptographic techniques; and ● Used distributed ledger technology.
UTILITY TOKENS
It is worth noting that crypto assets are the only financial product where there is no central issuer. Further, the term is broadly defined and could include utility tokens — which would not in the ordinary sense be regarded as financial products. This broad definition may also capture
specific types of crypto assets, such as those in respect of nonfungible tokens (NFTs) and mining nodes and node operators. However, the FSCA has acknowledged by means of a separate general exemption that at this stage, the inclusion of financial services related to NFTs and node operations is not appropriate and should not be subject to the FSCA’s oversight. Nonetheless, the reach of the definition is sure to raise many questions as to whether a certain product is included or not. What is the effect of the declaration? Persons rendering financial services in respect of crypto assets must:
● Apply for a licence under Fais between June 1 2023 and November 30 2023; ● Immediately comply with certain provisions of the Determination of Fit and Proper Requirements for Financial Services Providers, 2017 (relating to honesty and integrity) and the General Code of Conduct for Authorised Financial Services Providers and Representatives, 2003 (relating to rendering financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry); ● Comply with the remainCONTINUED ON PAGE 2