By Lerato Lamola, Partner at Webber Wentzel
As of June 2024, the Financial Sector Conduct Authority (FSCA) has issued 138 crypto asset service provider (CASP) licences. The discussion about the crypto industry now moves from whether crypto assets should be regulated to more detailed topics around "What should be regulated?" and "How should it be regulated?"
There are currently two pieces of legislation in relation to crypto assets that require some form of registration or approval. On the one hand, you have CASP financial service provider licences issued by the FSCA in terms of the Financial Advisory and Intermediary Services Act. On the other hand, you have the Financial Intelligence Centre (FIC) requiring registration of CASPs deemed accountable under the Financial Intelligence Centre Act.
South Africa has decided it wants to regulate crypto assets so the regulatory discussion now progresses to other areas that require clarity. One of the emerging discussions is whether all tokens (crypto assets) should be regulated in the same manner.
In the crypto community, people talk about coins and tokens. Coins are understood to be digital currency while tokens are digital assets, with various uses, developed or issued for a particular project. At a high level, you either come across fungible or non-fungible tokens in the digital asset market. Fungible tokens are identical and interchangeable while non-fungible tokens represent unique items on a blockchain. However, to determine the type of token you are dealing with, it is crucial to know what the holder of a particular token is entitled to?
Unlike Europe's Markets in Crypto-Assets Regulation, which sets out categories of crypto assets within its regulatory regime, South Africa has adopted a broad definition for crypto assets and currently does not have any sub-categories. To add further complexity to the discussion, the two regulations that currently cover crypto assets in South Africa do not adopt the same definition. The definitions are similar but not the same.
Interested and affected parties will have to assess if they require the FSCA licence when dealing with the following crypto assets:
· Digital representation of value
· Not issued by a central bank
· Capable of being traded, transferred or stored electronically
· Used for the purpose of payment, investment and other form of utility
· Applies cryptographical techniques
· Uses distributed ledger technology.
It will also be necessary to assess if registration with the FIC, as an accountable institution, is also necessary when dealing with these types of crypto assets:
· Digital representation of value or perceived value
· Can be traded or transferred electronically within a community of internet users
· Considered by a community of users as a medium of exchange, unit of account or store of value used for payment or investment purposes but does not include digital representation of a fiat currency or a security as defined in the Financial Markets Act.
Due to the broad definitions of crypto assets by the South African regulatory regime, digital currency and assets (coins and tokens) potentially fall within the ambit of the definitions. The definitions are technology-neutral and intentionally broad with the intention of capturing an array of digital assets and currency.
As South Africa is still at the beginning of its crypto asset regulatory journey, further clarity is expected about crypto assets and activities exempt from licencing requirements. In the interim, most players in the crypto industry are seeking, from a regulatory perspective, clarity on South Africa's exchange control position.
