South Africa declares crypto to be a financial product subject to financial services law

The declaration marks the beginning of the long-awaited process of regulating crypto assets, which will produce benefits such as consumer protection and AML/KYC compliance.

The Financial Sector Conduct Authority (FSCA), South Africa’s financial regulator, published a notice Oct. 19 indicating that the country’s 2002 Financial Advisory and Financial Intermediary Services Act (FAIS) has been updated to include a definition of crypto assets. A decision of this type has been expected for several months. It brings crypto assets under regulation in South Africa for the first time.

The FSCA notice, which went into force on publication in the state Green Gazette, states that a crypto assets is “a digital representation of value” that can be electronically traded, transferred and stored but is not issued by a central bank. Additionally, it “applies cryptographic techniques” and uses distributed ledger technology. The notice goes on to state that crypto assets are declared financial products.

This is an historic moment for South Africa:

Today the Financial Sector Conduct Authority (FSCA) declared a crypto asset as a financial product under the FAIS Act.

This Declaration was published in the Government Gazette as well as the FSCA website.

— Farzam Ehsani (@farzamehsani) October 19, 2022

Under the FAIS, a financial product is defined as a security, debenture, “any money-making instrument” or an instrument conferring rights to securities and instruments. It can be offered by financial service providers, whether they are domestic or international firms, that are licensed in South Africa. Registration can be “an onerous procedure,” according to the local press.

Related: On Freedom Day, Bitcoin gives South Africans a stake in their financial future

A draft declaration on crypto assets was published in November 2020. In June 2021, a national working group created a regulatory roadmap for a regulatory framework. Regulation will help the country confirm to Anti-Money Laundering/Know Your Customer (AML/KYC) standards and protect investors, but the details of the AML/KYC requirements have aroused some controversy. In February 2022, South Africa’s National Treasury confirmed the intention of declaring cryptocurrency a financial product and of enhancing monitoring and compliance of transactions with crypto.

According to the Chainalysis 2022 Global Crypto Adoption Index, published in September, South Africa ranks 30th worldwide for cryptocurrency adoption. Various estimates say that about 10-13% of the South African population are crypto holders.