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FAIS Ombud Announces Commitment to Resolve Complaints in a “Procedurally Fair, Informal, Economical and Expeditious Manner”
The South African Office of the Ombud of Financial Services Providers (FAIS) has announced that it can now investigate complaints against providers of crypto assets, as well as existing registered Financial Service Providers who offer advice on Cryptocurrency.
There have been growing calls from regulators in South Africa for greater consumer protection after a series of high-profile blows to the crypto-sphere and a fierce downturn in the cryptocurrency market across the board in 2022 that led to significant investor losses.
In October of last year, South Africa’s Financial Sector Conduct Authority (FSCA) formally declared cryptocurrency assets would now be recognized as financial products in terms of the FAIS Act (Financial Advisory and Intermediary Services Act, 37 of 2002). This has enabled crypto assets to be regulated, and by extension allows the FAIS Ombud to investigate complaints relating to cryptocurrency providers, leading to greater consumer protection in South Africa.
Classifying Crypto Assets as Financial Products Allows them to be Regulated, Leading to Greater Consumer Protection.
Before being classed as financial products, the office of the FAIS Ombud was not able to investigate complaints related to cryptocurrency assets as they were not within of their jurisdiction. This left complainants unprotected and unable to receive assistance from the Ombud.
The regulatory body said in the statement released on Monday, 16th January 2023:
“This has now changed, and providers of crypto assets will now fall within the regulatory jurisdiction of the FSCA and, by extension, complaints against such providers may now be investigated by the Office of the FAIS Ombud”.
The statement added:
“The Office can investigate complaints against existing registered financial service providers who offer advice on cryptocurrency.
These providers need to comply with all the requirements of the Code such as material disclosures, conducting a needs analysis, and recommending a product that is appropriate to one’s needs and circumstances.”
Crypto Asset Providers have until November 2023 to apply for a license. Prior to this, they must adhere to the General Code of Conduct for Authorised FSPs.
In the announcement, asset providers are given a temporary exemption until 30 November 2023 to apply for a license with the FSCA. Until a license has been attained, Crypto Asset Providers in South Africa are nonetheless bound by Section 2 of the General Code of Conduct for Authorised FSPs and Representatives (Board Notice 80 of 2003). This means they must operate and adhere to regulatory requirements, as if they are a licensed Financial Service Provider.
“Section 2 provides that an FSP must at all times render financial services honestly, fairly, with due skill, care, and diligence, and in the interests of clients and the integrity of the financial services industry.”
The classification of crypto assets as financial products last year was preceded by a policy paper on Crypto Assets released in 2021 by South Africa’s Intergovernmental Fintech Working Group (IFWG), which provided a framework on how those assets would be regulated as well as recommendations for bringing regulation to Crypto Assets in South Africa.
The Office of the FAIS Ombud Warning of the Dangers of Crypto Currency Investments For Years.
During a briefing last year, former acting FAIS Ombud Advocate, Nonku Tshombe, said there had been a significant increase in the number of complaints received about investments made into cryptocurrencies during 2020-2021. However, the lack of regulation in the sector at the time rendered it impossible to assist complainants with their issues.
“Together with the inadequate deterrents to prevent or limit the influx of unscrupulous financial services providers, this points to the likelihood that there will be an increase in the number of complaints received by this office.
– Nonku Tshombe, Former Acting FAIS Ombud Advocate.
The FAIS Ombud yearly report highlighted that the ‘financial and social atmosphere’ in South Africa might motivate South Africans to purchase Crypto Assets over those on offer in traditional financial markets. It said that people may be encouraged to seek alternatives in the face of a shrinking economy, referencing Covid 19 lockdowns and South Africa’s sovereign credit rating being downgraded to ‘junk’ status by several rating agencies.
“We anticipate that this may encourage people to be attracted to investment or investment vehicles with so called ‘high’ or unrealistic rates of return in a bid to address the unfavourable economic situation,”
Comments have also been made in the past by the Ombud regarding the risks particularly to people with low financial literacy. It said a lack of understanding of financial products and how the sector is regulated mean people are more likely to meet with problems, as well as be unaware of where to seek assistance should they need it.
“Consumer illiteracy of the regulated environment may impact on the preparedness of the majority of the South African public to engage in formal investment activities, given that people tend to be less willing to participate in an activity they do not understand and instead turn to activities in the informal sector which are more prone to result in a reproachful treating of consumers, thus increasing the risk of the complaints that may be lodged with this office.
All of this results in the continued financial illiteracy in the population and vulnerability to pyramid, Ponzi schemes and products that still require regulatory investigation, such as cryptocurrency.”
The new regulatory requirements for Crypto Asset Providers and clear path for the public to report issues to the regulatory body are positive steps towards increased confidence and greater protection in the crypto space. The FAIS will be able to monitor their progress tackling ‘unscrupulous’ actors within the crypto sphere, as well as offer assistance to members of the public.
With growing consumer awareness around crypto products, those operating in the crypto-sphere can be more confident and informed in their financial dealings and investments moving forward.
More About FAIS Ombud
According to the FAIS website, the vision of the Ombud is to be an “independent, effective and trusted alternative dispute resolution office for complaints arising from the provision of financial services”.
Their mission is “to promote consumer protection and enhance the integrity of the financial services industry by the fair and expeditious resolution of complaints, informally and free of charge”.
