Limits to FAIS Ombud’s Jurisdiction over Crypto Complaints

The FAIS Ombud’s office issued a statement this week advising consumers that it can investigate complaints against crypto asset providers. This is a result of the FSCA’s declaration last year that crypto assets are a financial product in terms of the FAIS Act.

Read: What crypto asset providers need to know about licensing, regulation

However, the ombud’s jurisdiction in respect of complaints about crypto assets is not unlimited.

First, the complaint must be about crypto advice and services rendered from 19 October 2022, which is the date on which the FSCA’s declaration was published in the Government Gazette.

Second, certain participants in the “crypto ecosystem” are exempt from having to comply with the FAIS Act. They are:

Crypto asset miners, which are defined as “a juristic or natural person that, alone or in a mining pool, uses computers or specialised hardware to participate in blockchain processing by verifying and adding new transactions to the blockchain”.
Node operators, who are juristic or natural persons who run “software that keeps a complete or pruned version of the blockchain and broadcasts transactions across the network”.
People who render financial services in relation to NFTs (non-fungible tokens), which are “crypto assets recorded on a blockchain with unique identification that distinguishes them from each other and can be associated with real-world objects”.
The FAIS Ombud does not entertain complaints related to the investment performance of a financial product, unless such performance was expressly guaranteed.

For the ombud to entertain a crypto-related complaint, the product must conform to the definition of a “crypto asset” and the advisory or intermediary service in relation to that crypto asset must have been provided by a “crypto asset FSP”.

As the FAIS Ombud’s office put it in response to questions from Moonstone, a crypto asset is the financial product sold by the crypto asset FSP. “In this context, the FAIS Office will generally only investigate any complaints regarding the financial advice and services rendered by the FSP in relation to the crypto asset.”

It said the FAIS Ombud’s office will generally not investigate any complaint regarding the crypto asset itself unless the Ombud Council requires it in terms of section 211(1)(a) of the Financial Sector Regulation Act.

FAIS Notice 90 of 2022 defines a “crypto asset” as a digital representation of value that:

Is not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility;
Applies cryptographic techniques; and
Uses distributed ledger technology.
Who is a crypto asset FSP?
A “crypto asset FSP” is a person who is licensed under section 8 of the FAIS Act to render a financial service in relation to crypto assets. Crypto asset FSPs currently have a temporary exemption from the licensing requirement. They must apply for a licence between 1 June and 30 November 2023.

The temporary exemption is subject to certain requirements. One of them is that crypto asset providers must, from 19 October 2022, comply with section 2 of the General Code of Conduct for Authorised FSPs and Representatives, as if they were licensed FSPs.

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.

Another condition is compliance with Chapter 2 of the Determination of Fit and Proper Requirements for FSPs, which sets out the honesty, integrity and good standing requirements that apply to all FSPs and their key individuals and representatives.

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