The FSCA’s declaration of crypto assets as a financial product seems to have been largely welcomed by crypto asset service providers (Casps).
Read: What crypto asset providers need to know about licensing, regulation
Read: Why the FSCA brought crypto assets within the regulatory net
Some believe that regulation will open the door to financial advisers including their products among the investment options offered to clients.
Paul Casarin, the chief executive of Pet Rock Investments, said: “Financial advisers are looking for exposure to this asset class but are fundamentally concerned with its volatility and inherent technical risks, especially custody. Regulations will provide the level of trust the market needs.”
Pet Rock provides investors with access to crypto markets via fund structures.
A recent survey conducted by Pet Rock found that many advisers indicated that they see crypto becoming a crucial part of financial planning in the next 12 months. Because many of their clients are already buying crypto without asking their advisers, 72% of the respondents planned to allocate crypto to their clients’ accounts.
Marius Reitz, the general manager for Africa at crypto platform Luno, said regulation should allow financial advisers to formally advise their clients on crypto investments.
“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,” he said.
Jonty Sacks, a partner at alternative investment company Jaltech, said the regulations were a “welcome relief” to the financial services industry, particularly for financial advisers, who will now be able to advise clients on crypto investments.
“The regulations will now require financial advisers to upskill on their crypto knowledge, which will likely result in greater adoption by the South African investor market,” he said.
Farzam Ehsani, the chief executive of crypto asset exchange VALR, said: “Overall, this is a positive step for the crypto industry and South Africa in general. This declaration will open the door to many of the large traditional financial (TradFi) institutions in South Africa to start providing crypto products and services.
“TradFi has been hesitant to enter crypto in South Africa because of the lack of regulatory clarity in South Africa. This has been said to me by nearly all of the TradFi players. This declaration now provides the regulatory clarity.”
Hannes Wessels, the country head for cryptocurrency exchange Binance South Africa, said the declaration will “aid clarity, user protection and much-needed confidence in the ecosystem”.
FSCA went ‘overboard’ in some respects
Cryptocurrency investment platform Revix said in a statement it generally welcomed the declaration, which had been expected, because it was included in the FSCA’s regulatory roadmap for 2022.
However, it drew attention to the fact that Casps will have to start meeting the Financial Intelligence Centre’s financial surveillance and anti-money laundering requirements as accountable institutions.
“The regulatory burden on Casps may stifle innovation and is likely to impose significant barriers of entry or continued access for smaller firms, but on a balance, this will be outweighed by the obvious consumer protection benefits.”
Consumers in the South African market can now interact with Casps with greater confidence and expect that their crypto assets will be protected to a greater degree and demand greater transparency on fees and custodial practices.
“However, we do have to note that the FSCA’s declaration is overbroad insofar as it fails to distinguish between different classes of crypto assets. The declaration does not cater for the difference between stablecoins, crypto asset securities, crypto asset commodities and crypto asset utility tokens.”
Revix said this is out of step with the international approach, where great care has been taken to distinguish between digital securities and ordinary cryptographic assets. In the United States, for example, the chairperson of the Securities Exchange Commission has conceded that it is unlikely that Bitcoin would qualify as a security.
Opening doors
Dean Joffe, the co-founder of BitFund, said: “Arguably, this hastily (announced) move comes off the back of South Africa scrambling to comply with remediation recommendations issued by the Financial Action Task Force, in order to avoid being grey-listed.”
Although regulation was a step in the right direction towards legitimising crypto assets among institutional investors, Joffe said “many questions, comments and arguments remain open, valid and up for debate”.
He said the regulations would further open the doors between the traditional finance sectors and the Casps. However, it was importance for the FSCA to guide Casps through the licensing process.
“Regulation is a balancing act between stifling innovation and protecting consumers – a balance which the regulator may be prematurely embarking upon, without fully engaging with, or responding to, industry concerns. Nevertheless, we hope that declaring crypto assets as financial products will not only achieve what the regulators set out to do, but open further opportunities for Casps in the traditional finance sector.”
