Following public consultation process, the Financial Sector Conduct Authority (“FSCA”) on 11 May 2023 released FSCA Communication 16 of 2023 (FAIS) EXEMPTION OF PERSONS RENDERING A FINANCIAL SERVICE IN RELATION TO CRYPTO ASSETS FROM CERTAIN REQUIREMENTS, 2023 (“Communication 16 of 2023 (FAIS)”), informing stakeholders of the highly anticipated publishing of the final Exemption of Persons Rendering Financial Services in relation to Crypto Assets from certain requirements.
Alongside its release of Communication 16 of 2023 (FAIS), the FSCA published the following documents on its website:
· FSCA FAIS Notice 25 of 2023 – Exemption of Persons rendering a Financial Service in relation to Crypto Assets from Certain Requirements, 2023 (“Final Exemption”);
· Annexure A – Response Matrix relating to comments received on the draft Exemption of Persons rendering Financial Services in relation to Crypto Assets from Certain Requirements (“Draft Exemption”), that was published for comment on 19 October 2022; and,
· FSCA FAIS Notice 24 of 2023, Revised List of Qualifications Recognised for Financial Services Providers, Key Individuals and Representatives (“FAIS Notice 24 of 2023”).
This is a much welcome development and comes in the wake of the FSCA’s final Declaration of a Crypto Asset as a Financial Product (“Declaration”) under the Financial Advisory and Intermediary Services Act, 2003 (“FAIS Act”), the Policy Document in support of the Declaration, and the Draft Exemption, published in October 2022.
Alongside the Declaration, the FSCA also published a general exemption of persons rendering financial services (advice and/or intermediary services) in relation to crypto assets from section 7(1) of the FAIS Act. As a result of the general exemption, a person who, as a regular feature of the business of such person, renders a financial service in relation to crypto assets, may continue to render financial services in relation to crypto assets without being licenced, provided that such person applies for a licence under the FAIS Act. The aforesaid application must be made within the period specified in the exemption namely, 1 June 2023 and 30 November 2023, and the person must comply with all other conditions contained in the exemption.
The FSCA indicates, in Communication 16 of 2023 (FAIS), that the application forms to be completed and submitted to the FSCA by FSPs applying for a licence in terms of section 8 of the FAIS Act, have now been assessed and, where appropriate, amended to make provision for the crypto asset product sub-category. Accordingly, Licence Forms FSP 2, FSP 4C, FSP 4D and FSP 5 were amended and a notice confirming the publication of the application forms will be published on the FSCA’s website (www.fsca.co.za) before 1 June 2023. Once published, the forms, together with all the other applicable application forms, will be accessible through the FSCA’s website as follows: Home > Regulated Entities > Licensing and Registration > FAIS > New Applications > Forms.
The FSCA has considered all comments received on the Draft Exemption, which proposed to exempt licensed Crypto Asset FSPs and their key individuals and representatives from certain requirements of, amongst others, the General Code of Conduct for Authorised Financial Services Providers and Representatives, 2003 (“General Code of Conduct”) and the Determination of Fit and Proper Requirements for Financial Services Providers, 2017 (“Determination”).
Notably, the most material amendment made to the Draft Exemption is the removal of the exemption from section 23 of the Determination. For context, section 23 of the Determination provides that a FSP, Key Individual and a representative must have a qualification recognised by the Registrar in terms of section 24.
The effect of this amendment is that section 23 of the Determination will apply to Crypto Asset FSPs, their Key Individuals and representatives which, explains the FSCA, means that “they are required to have a qualification recognised by the FSCA as is the case for all other FSPs”.
The FSCA has also published the updated ‘List of Qualifications Recognised for Financial Services Providers, Key Individuals and Representatives’ making provision for the crypto asset product sub-category on its website under FSCA FAIS No. 24 of 2023 and can be accessed as follows: Home > Regulated Entities > Licensing and Registration > FAIS > Fit and Proper > Competence Requirements > Qualifications > Qualification List.
The FSCA has emphasised that “any person can at any stage submit an application to the FSCA to recognise a specific qualification for purposes of section 23 of the Determination”. Further stating that an application for the recognition of a qualification can also be included as part of a licence application under section 8 of the FAIS Act.
Importantly, the FSCA has urged persons holding a different qualification than those reflected on the list of recognised qualifications, and which qualification they believe should reflect on the list, to submit an application to the FSCA for the recognition of such qualification as soon as possible.
The FSCA has noted that the other amendments made to the draft Exemption are largely cosmetic changes, made for clarity purposes or made to apply the existing requirements to crypto asset providers.
In this respect, paragraph 2(1) of the Draft Exemption was amended to clarify that the exemption of Crypto Asset FSPs from section 13 of the General Code of Conduct and Board Notice 123 of 2009 (being the Notice on Requirements for Professional Indemnity and Fidelity Insurance Cover for Providers, 2009, published by Board Notice 123 of 2009 in Government Gazette No. 32587 on 21 September 2009) applies only insofar as it relates to the rendering of financial services in respect of crypto assets. In other words, the exemption is only of application to crypto assets but not does not apply to any other financial products that such FSP is also licensed.
The FSCA has also explained that the removal of reference to “representative” in paragraph 2(4) of the Draft Exemption is due to its erroneous insertion. It is noted that “a representative of a Crypto Asset FSP who, before publication of the Exemption, was never appointed as a representative of an FSP and does not comply with the regulatory examination requirements, is subject to the exemption stipulated in paragraph 3(3) of the draft Exemption.”.
Paragraph 2(5) of the Draft Exemption has also been removed to “clarify that the minimum of 6 hours of CPD activities relating to crypto assets is required in addition to the CPD requirements set out in section 33(1) of the Determination, where applicable”. The requirement or condition that a Crypto Asset FSP, its key individuals and representatives must “complete a minimum of 6 hours of CPD activities relating to crypto assets per CPD cycle” is now clarified to be an additional condition under paragraph 4 of the Final Exemption.
In addition, the exemptions applicable to crypto asset supervised representatives have now been clarified by the amendments made by the Final Exemption. The FSCA has also noted previous communications relating to the application of section 15 of the Determination (stipulating the general experience requirement of adequate and appropriate experience) to Crypto Asset FSPs and their key individuals and representatives.
The position taken by the FSCA in this regard is that Condition 2(7)(b) of the Exemption of Services under Supervision, 2018 (“Exemption of Services under Supervision”), mandating that a representative must remain under supervision until it has been assessed and found to have the required experience in respect of the particular financial product for which such representative is appointed “will equally apply to a crypto asset supervised representative who does not meet the experience requirement”. The FSCA has however, clarified that exemption from the experience requirements under the Exemption of Services under Supervision “would equally apply to a crypto asset representative who does not meet the experience requirements in section 15 of the Determination”. As a result, paragraph 3(1) of the Draft Exemption as well as the definition of ‘experience requirement’ have been removed. The effect of the latter removal, is that there is no longer a need to separately define ‘crypto asset competency requirements’ considering that the existing definition of ‘competency requirements’ in the Exemption of Services under Supervision will now apply to a crypto asset supervised representative.
The FSCA further explains that the Final Exemption amends paragraph 3(3) of the Draft Exemption by inserting an additional paragraph to “clarify that a crypto asset supervised representatives, who has a date of first appointment to render financial services only in respect of a Tier 2 financial product or perform the execution of sales, also has 2 years from the date on which such person was first appointed as a representative to render financial services in relation to crypto assets, to comply with the applicable regulatory examination requirements”.
The removal of paragraph 3(4) of the Draft Exemption, as seem to be the case with the removal of paragraph 2(5), further clarifies that, where applicable, a crypto asset supervised representative is required to complete a minimum of 6 hours of CPD activities relating to crypto assets in addition to the CPD requirements set out in section 33(1) of the Determination – this is now provided under paragraph 4 in the Final Exemption.
The FSCA further notes that the additional paragraphs contained under paragraph 4 of the Final Exemption have been included to clarify that a crypto asset supervised representative “who has a date of first appointment to render financial services only in respect of a Tier 2 financial product or performs execution of sales, and who after that date is appointed as a representative to render financial services, other than the execution of sales, in relation to crypto assets, must complete the required CPD requirements as follows: CPD requirements become applicable starting from the date on which the representative meets the applicable regulatory examination requirements and qualification requirements OR after 6 years from the date on which the person was first appointed as a crypto asset supervised representative, whichever occurs first.” .
The FSCA further notes the removal of paragraphs 3(5)(a) and (b) of the Draft Exemption, indicating this was necessary to prevent misunderstanding, and confirms that the Exemption of Services under Supervision, in its entirety, will apply to a crypto asset supervised representative where applicable.
The dedicated team at Hanekom Attorneys remains fully committed to assisting Crypto Asset FSPs in staying compliant while navigating this evolving regulatory licensing regime. If you require any further information, advice or assistance regarding Crypto Asset FSP applications – Please email us at info@hanekomattorneys.co.za for assistance.