Crypto asset FSPs will have to ensure that their key individuals (KIs) have a recognised qualification when they apply to the FSCA for a licence. Alternatively, they will have to apply for their KI’s non-recognised qualification to be recognised when they apply for a licence.
This is the implication of the amended notice setting out crypto asset FSPs’ exemptions from the General Code of Conduct for Authorised FSPs and Representatives and the Determination of Fit and Proper Requirements for FSPs.
The most significant amendment is the decision to remove the exemption for crypto asset FSPs, KIs and representatives to have a qualification recognised by the FSCA.
An FSP must have appointed a KI when it applies for a licence, and a person must have a recognised qualification to be appointed as a KI.
In October 2022, the FSCA declared a crypto asset to be a financial product under the FAIS Act. At the same time, it published a draft exemption for public comment that proposed to exempt licensed crypto asset FSPs and their KIs and representatives from certain requirements of the General Code of Conduct (Board Notice 80 of 2003) and the Determination of Fit and Proper Requirements (Board Notice 194 of 2017).
The deadline to comment on the draft exemption was 1 December 2022.
Read: Unpacking the proposed regulatory exemptions for crypto FSPs
The FSCA received 77 individual comments from 11 different commentators. As a result of the submissions, the Authority has amended the exemption, the FSCA said in a communication published on 11 May. Click here for a summary of the comments and the Authority’s responses to them.
The final exemption notice has been published as FAIS Notice 25 of 2023 (“Exemption of persons rendering a financial service in relation to crypto assets from certain requirements”).
Recognised qualification is a requirement
The most significant amendment is that FSPs, KIs and representatives must have a qualification recognised by the FSCA. In other words, the FSCA has changed its mind about exempting them from section 23 of the Determination.
“Initially, it was thought that qualifications recognised by the FSCA had not focused on crypto asset-related criteria, and it would therefore be difficult to, in the short term, identify crypto-related qualifications,” the FSCA said.
“However, the FSCA embarked on a process to evaluate the existing qualifications on the list of recognised qualifications to identify if, and to what extent, there might be qualifications on the list that can be recognised for purposes of crypto assets. The list of recognised qualifications was consequently updated, and section 23 of the Determination will therefore apply as is to crypto asset FSPs, their KIs and representatives, meaning they are required to have a qualification recognised by the FSCA, as is the case with all other FSPs.”
The updated list of qualifications recognised for FSPs, KIs and representatives that provide for the crypto asset product sub-category is published on the FSCA’s website under FAIS Notice 24 of 2023 and can be accessed as follows: www.fsca.co.za > Regulated Entities > Licensing and Registration > FAIS > Fit and Proper > Competence Requirements > Qualifications > Qualification List.
The FSCA said anyone can at any stage apply to the FSCA to recognise a specific qualification for the purposes of section 23 of the Determination. 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.
The Authority urged people who render crypto asset financial services and do not have a recognised qualification but have a qualification they believe should be on the list of recognised qualifications, to apply to the FSCA as soon as possible to have the qualification recognised.
Other points to note in the amended notice
A crypto asset FSP, KI and representative must complete at least six hours of CPD activities relating to crypto assets in addition to the CPD requirements set out in section 33(1) of the Determination.
The final notice retains the proposal in the draft exemption for KIs and representatives to be granted a temporary exemption from passing the regulatory exams. This exemption will be for 18 months from 12 May 2023.
Note, there are separate CPD and RE provisions for representatives working under supervision.
The amended notice clarifies the application of the exemption from the requirement for a crypto asset FSP to have suitable guarantees, or professional indemnity, or fidelity insurance cover, per section 13 of the General Code of Conduct.
The notice states that the exemption applies only insofar as it relates to the rendering of financial services in respect of crypto assets. Where an FSP is licensed for other financial products in addition to crypto assets, the exemption does not apply to the other financial products.
Licensing update
When, in October 2022, the Authority declared a crypto asset to be a financial product under the FAIS Act, it introduced transitional arrangements for crypto asset FSPs.
Crypto asset FSPs are allowed to operate temporarily without a licence from the FSCA subject to certain conditions.
One of those conditions is that they apply for a licence between 1 June and 30 November 2023. The exemption from the licensing requirement will apply until the licence application submitted within this period has been approved or declined. As long as a provider applies for a licence by 30 November, it can continue to operate while the FSCA processes its application.
Read: What crypto asset providers need to know about licensing, regulation
In its communication published on 11 May, the FSCA provided an update on the preparations for licensing crypto asset FSPs.
The FSCA has amended the application forms that FSPs must complete and submit to the Authority, to provide for the crypto asset product sub-category. These licence forms are FSP 2, FSP 4C, FSP 4D, and FSP 5.
The FSCA will publish, before 1 June, a notice on its website to confirm the publication of the licence forms. Once published, the forms can be accessed at www.fsca.co.za > Regulated Entities > Licensing and Registration > FAIS > New Applications > Forms.
