The fintech industry in South Africa is experiencing a significant surge in innovation, paving the way for financial institutions to reach a broader customer base and fostering much-needed financial inclusion in the country. However, the rapid expansion of this digital frontier has brought forth the pressing need for a regulatory framework tailored to the digital age while promoting broader participation.

Crypto Assets in the Spotlight

In the past year, crypto assets have emerged as a focal point of regulatory discussions in South Africa. Authorities have swiftly responded to the inherent risks associated with cryptocurrency investments, taking crucial steps to safeguard investors. Notably, the Financial Sector Conduct Authority (FSCA) made a landmark declaration, classifying crypto assets as financial products in the Financial Advisory and Intermediary Services Act 37 of 2002 as amended (the “FAIS Act” or “FAIS”). This classification came into effect on 19 October 19 2022. [1]

Mandatory Licensing Requirements

As part of these regulatory developments, a significant milestone looms. Starting 1 November 2023, businesses providing advice or intermediary services related to crypto assets require an FSP licence. The declaration establishes a regulatory and licensing regime for persons providing financial services regarding crypto assets. Crypto asset FSPs must be licensed and subject to the FSCA’s oversight and supervision. This move aims to enhance oversight and ensure that industry participants adhere to the highest standards of professionalism and ethics.

The declaration has the effect that anyone who, in the normal and regular course of business renders financial services in relation to crypto-assets must:

· Either be authorised under section 8 of the FAIS Act as an FSP or be appointed as a representative of an authorised FSP (section 13 of FAIS); and

· Comply with the requirements of inter alia FAIS .

Failure to comply constitutes a contravention, which is an offence in terms of section 36 of FAIS, which may carry a fine not exceeding R10 million or imprisonment for up to 10 years or both.

AML/CFT Obligations

In addition to licensing requirements, crypto asset providers will also be obligated to comply with specific Anti-Money Laundering (“AML”) and Countering the Financing of Terrorism (“CFT”) outlined in the Financial Intelligence Centre Act 38 of 2001 as amended (“FICA”). This strengthening of AML/CFT obligations directly responds to South Africa’s inclusion in the international grey list, highlighting the nation’s commitment to combat illicit financial activities.

Whether you are a fintech entrepreneur, investor, or simply seeking guidance in this dynamic field, our legal experts are here to provide comprehensive advice and support. Don’t hesitate to contact us if you require assistance or have questions regarding technology law in South Africa. We are dedicated to helping you navigate the evolving regulatory landscape and seize the opportunities the fintech revolution presents. Contact our experienced legal team today to ensure that your fintech endeavours are compliant, secure, and poised for success in this digital age.

[1] The declaration was made in General Notice 1 350 of 2022 and took effect from 19 October 2022