Crypto health warning for financial customers

Crypto assets, including cryptocurrencies, are digital representations of value that are not issued by a central bank. Some of the more well-known crypto assets include Bitcoin (BTC) and Ethereum (ETH). Crypto assets are traded, transferred and stored electronically and have been used for payments, investments and capital-raising.

Recently, following the high volume of complaints to the FSCA a crypto health warning was published, highlighting the risky nature of these crypto assets or products. Customers are again strongly advised to minimise financial losses by obtaining professional advice before investing in risky assets like cryptos.

Further to this, crypto-related investments are not regulated by the FSCA or any other body in South Africa. As a result, if something goes wrong, the investor is not likely to get their money back and will have no recourse. Retirement fund trustees are also urged to remain vigilant in their fiduciary duties before mandating investment managers to expose their fund assets to risks associated with crypto assets. The FSCA currently discourages such investments by retirement funds until regulation has been finalised to safeguard investors.

The FSCA as part of the Intergovernmental Fintech Working Group (IFWG) comprising of the National Treasury, South African Reserve Bank and Prudential Authority, Financial Intelligence Centre, National Credit Regulator and South African Revenue Services, in November 2020, published a position paper – The Draft Declaration of crypto assets as a financial product under the Financial Advisory and Intermediary Services Act – which made a variety of recommendations pertaining to the regulation of crypto assets. Public comments are currently under consideration by the relevant authorities.

What is important to note is that, the draft Declaration in no way impacts the status of crypto assets in the context of other laws such as the Financial Sector Regulation Act (FSR Act) exchange control regulations, requirements under the Pension Funds Act (PFA) and Collective Investment Schemes Act (CIS Act) and so forth, nor does it attempt to regulate, legitimise or give credence to crypto assets.