On Thursday October 22nd during a media briefing the Financial Sector Conduct Authority (FSCA) through the Financial Advisory and Intermediary Services Act (FAIS), officially declared cryptocurrency as a financial product. The regulatory body has now indicated that crypto assets are regulated, and foreign exchange controls implemented. But what does this mean for your retirement fund portfolio? And broader your personal wealth portfolio?
The commissioner of the FSCA, Unathi Kamlana, assessed and justified the FSCA position, addressing why crypto assets need to be treated as financial products. Outlining that the cryptocurrency industry has been marketing their products very aggressively to the virtual consumer, without any oversight as to the quality of the product to the virtual client. Stating that the FSCA cannot allow for a situation in which cryptocurrency operates outside the regulatory framework, adding that it is neither ideal nor in the public’s best interest. Therefore, the statement that these are now financial products, does not in any way reduce the high levels of risk involved in crypto assets. With the new classification, the risk of these assets has not changed, therefore you are still vulnerable to a high possibility of loss.
The crypto market, since its introduction, has grown dramatically, and will continue in its growth trajectory, therefore the financial sector must be responsive and proactive to these changes. In its exponential growth, cryptocurrency has also seen a dramatic increase in scams and cybercrime. The aim of the declaration is to reduce the criminal activity that has impacted both individuals and businesses with the rise of cryptocurrency.
The FSCA declares and defines a crypto asset as a digital representation of value.
The declaration is very specific to dealing with cryptocurrencies in the context of financial services, and further the services rendered in relation to crypto assets. However, this regulation does not indicate the following:
Noting that there has been a lot of allegations made against cryptocurrencies, in relation to fraud and crypto scams, this is further including other types of operational risks not only to businesses, but also to individuals with crypto assets. This is therefore a driving factor to the case of much needed regulatory intervention, and an all-encompassing comprehensive approach to regulation. Crypto assets are still in no way allowed in pension and regulated portfolios, as outlined they are yet to be legitimised assets. Pension and regulated portfolios may only operate with regulated legitamised assets as outlined by Collective Investment Schemes Control Act (CISCA).
Under the new regulation, Crypto traders will need to get licensed, as the new regulation will enable the financial regulatory body to receive data, promote disclosure and at a foundational level understand the key risks in virtual asset business models.
A pivotal benefit to the licensing of Crypto traders is that the FSCA will be able to ask for information, to protect consumers. A preventative measure to reduce occurrences of both scams and cyber-crime. In the broader regulation of the industry, the FSCA has advised that consumers who both do and wish to participate in the crypto space must educate themselves around crypto trading. As the reality is that if you are in ownership of crypto assets, you will now need to declare these assets as a part of your portfolio reporting and financial planning.
It is a key point to remember that while crypto assets are now classified as financial products, they are still highly volatile and hold a high risk and high loss ratio, something to keep in mind before chasing a crypto asset investment.
The NMG SA Group of Companies are authorised financial service providers t/a NMG Benefits
