The latest buzz words shaking up the technology, business, financial and legal establishments are not to be treated lightly. These terms are uniting (hard as it might be) all the major role players in their quest to evaluate the potential far-reaching effects it might hold for the future of commerce globally. It is difficult to ignore the fast-paced development of the latest technological advances, as we find ourselves amid the fascinating transition phases nestled between the Third and Fourth Industrial Revolutions. More importantly, as the universal compatibilities envisioned for this technology have now progressed from hypothetical online discussions between “tech-developers” and futurists to functioning real-life applications, passionate debates have erupted across a variety of diverse forums. Ranging from the corridors of legislators and financial regulators to the living rooms of the Stokvel run by Joe Soap, as people are curious (and watchful) about the industries based on the Future Frontier – and rightly so.

As the terminology is complex, we will not aim to explain what the Blockchain, Cryptocurrencies (which include BitCoin) or Initial Coin Offerings (“ICO”) are. We will also not attempt to define or address the application possibilities of these initiatives in this post, as the possibilities are vast and beyond the scope of this post. (For more information on the technical aspects relating to these terms, please see the links below explaining this in more detail.[1]) We will only briefly aim to highlight some aspects start-ups and potential investors should bear in mind when investigating the opportunities created by the technology found on this Future Frontier.

For Start-Up’s

Start-ups looking to venture into the industries of the Future Frontier are advised to note that there is still a lot of uncertainty as to the regulations governing and enforcing the practical application thereof. As such, carefully considering the current legislative frameworks in existence (and more importantly, the purpose behind it) might provide a helpful understanding of the things entrepreneurs should consider when developing their business models for the market. In a South African context, start-ups should consider the following legislative and regulatory concerns which might be applicable to them:

  • FICA, Money-Laundering and Know-Your-Client (KYC) legislation: due to cryptocurrencies trading far more anonymously over various encrypted platforms entrepreneurs are encouraged to familiarise themselves with the relevant FICA, Money laundering and KYC processes. Especially in industries where payments are being made by potential payment or payment systems operators;
  • Business of a Bank and Collective Investment Schemes: Business models based around the collecting and pooling of fees and/or accepting deposits for investments into cryptocurrencies and ICO’s might be considered to be Collective Schemes or structures conducting the business of a bank, both of which are strictly regulated by the SARB and FSB, respectively;
  • Financial Advisory and Intermediary Services Act (Twin Peaks Financial Sector Regulation Bill): any current or potential services aimed at the financial advisory or intermediary industries are strictly regulated by the Financial Services Board (and will soon fall under the Twin Peak Provisions);
  • Exchange Control Regulations: Strict requirements regarding the outflow of capital and funds exist in South Africa. As a result, certain apps or services designed to facilitate transfers of this kind without prior SARB approval, tax clearance from SARS or adherence to existing policies may pose some concern to regulators;
  • Companies Act: A very popular means to raise funds for start-ups focusing on Future Frontier industries is by way of an ICO. During an ICO the start-ups issue their own crypto- tokens to participants at a discount and often raise vast amounts of capital. However, an ICO might, depending on the rights attached to these crypto-tokens, in some cases be regarded as a thinly veiled offer of securities to the public. If that is the case, the Companies Act and accordingly, the strict laws relating to the issue of securities by way of an offerings to the public will be applicable. Since the Securities Exchange Commission of the USA recently declared this position (not without criticism), other jurisdictions may follow suit; and
  • Consumer Protection Laws: The loss of virtual cryptocurrencies value, tokens issued to paying participants without any underlying value and other types of blockchain transaction issues such as erroneous payments and systems breaches, hacks or Ponzi schemes are things to consider. If not adequately managed, this may create serious liabilities, not to mention reputational damage, to any start-up involved in these types of commercial venture.

These are merely some of the myriad questions start-ups are urged to consider as a starting point into the regulatory and compliance frameworks regulating the industries on the Future Frontier.


Warren Buffet once said the following: “What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know”.

In keeping with this thought, we would therefore urge any investors considering investing into start-ups which focus on the Future Frontier industries to not stray too far from established investment principals. Especially in determining what the Investor does not know, conducting an adequate due diligence investigation (or “DD“) into the envisioned Start-up’s proof of concept, management of regulatory and compliance issues and the viability of their intended financial and business models should be considered a minimum requirement. Further to this, investors would do well to consider special escrow arrangements for any transfer of investment funds irrespective of whether these funds are done by way of crypto-funds/tokens and/or fiat currency. Also using respected and knowledgeable service providers may mitigate against any risks involved in these investments.


There are various levels of uncertainty regarding the practical and legal implications of these Future Frontier industries. This accordingly provides ample grey area for entrepreneurs and investors alike to either flower or flounder through. As such, we would recommend that any Start-Ups or investors contemplating to venture into these Future Frontier Industries to make sure that they have a clear view of the legal nature of the transaction at hand. If the legal nature of the transaction is clear, it enables the parties to take a measured approach to control the relative risk associated and build in the protective mechanisms that the law requires.

We hope to see legislators work with other industry experts to create a legislative framework that promotes certainty, without smothering the revolutionary initiatives and staggering opportunities presented by Future Frontier technology.

[1] For further detailed information regarding how Cryptocurrencies and the Blockchain function and operate please make use of the following recommend sources:



In an effort to keep our clients well-informed and to eliminate their chances of finding themselves on the wrong side of the law, we have found it necessary to write an article on the registration requirements of Financial Service Providers (“FSPs”). This article is a brief summary which details when the Financial Advisory and Intermediary Services Act 37 of 2002 (“the Act”) would require a business organisation to obtain authorisation. In other words, when will a business be required to be registered or licensed as an FSP?

In order to operate as a FSP in South Africa, a business entity or individual must be issued with a licence in accordance with section 7(1) of the Act read with section 8 of the Act and may not act or offer to act as a FSP unless being issued with such a license. Section 8 sets out how an FSP should apply for a license.  The process includes submitting an application to the registrar of the Financial Services Board (“Registrar”) along with certain information to satisfy the “fit and proper requirements”. Once the application has been considered by the Registrar one of the following may result:

  • the application is granted as a result of the applicant or key individuals complying with the requirements of the Act; or
  • the application is refused if the Registrar is not satisfied that the applicant or its key individuals comply with the Act.

A successful application may be granted with accompanying conditions and restrictions. These conditions and restrictions will be included in the licence issued by the Registrar. Upon an application being successful the Registrar must issue the applicant with a licence authorising the applicant to act as an FSP and the number of copies of such licence as the applicant requests. This licence may however be withdrawn or amended after it has been issued upon application by the applicant or by the Registrar on its own initiative. Conditions and restrictions may also be amended or imposed should key individuals change after the licence has been issued. Should an application be refused the applicant must be notified by the Registrar and be provided with reasons for the refusal.

An FSP is defined in the Act as any person, other than a representative, who as a regular feature of the business of such person furnishes advice; furnishes advice and renders any intermediary service; or renders an intermediary service. In order to determine whether one qualifies as an FSP, it is necessary to examine the meanings of “advice” and “intermediary service”. The Act defines “advice” as any recommendation, guidance or proposal of a financial nature furnished by any means or medium, to any client or group of clients about the purchase of any financial product or investment in a financial product. Any recommendation, guidance or proposal of a financial nature “on the conclusion of any other transaction, including a loan or cession, aimed at the incurring of any liability or the acquisition of any right or benefit in respect of any financial product” is also considered to be “advice” for purposes of the Act. Intermediary service means any act performed by a person, excluding the rendering of advice, which results in the client entering into any transaction in respect of a financial product with a product supplier without dealing with the product supplier directly.

A “financial product”, as mentioned above, has been given a broad definition in the Act in order to provide extensive protection to consumers. Financial products include a wide array of products such as a participatory interest in one or more collective investment schemes; securities and instruments including shares in a company, debentures, money market instruments and any “securities” as defined in section 1 of the Financial Markets Act 19 of 2012; a health service benefit provided by a medical scheme and a benefit provided by a pension fund organisation or a friendly society.

Persons who offer advice and intermediary services are either a “key individual” or a “representative”. A representative is a person who is employed or mandated by a financial services company to render advisory or intermediary services to clients. They make recommendations and perform activities based on their judgement and lead clients to conclude transactions on financial products. A key individual is a natural person who manages and oversees the activities of a FSP and is responsible for ensuring the operational ability of the FSP.

As mentioned above, part of the registration process includes meeting certain criteria, referred to as “the fit and proper requirements”. The fit and proper requirements differ according to the category in which the Registrar classifies FSPs. Section 6A of the Act provides a non-exhaustive list of what the fit and proper requirements may include. These requirements include (a) the personal character qualities of honesty and integrity, (b) competence including experience, qualifications and knowledge tested by the Registrar through examinations, (c) operational ability, (d) financial soundness and (e) continuous professional development.

  • Personal character qualities of honesty and integrity

The requirement of honesty and integrity refers to the fact that within the 5 years preceding the date of appointment as an FSP, the applicant must not have been found guilty in any criminal proceeding or liable in any civil proceedings by a court of law. The applicant must also not have been found to act fraudulently, dishonestly, unprofessionally, dishonourably or to have breached a fiduciary duty.

  • Competence including experience, qualifications and knowledge tested by the Registrar through examinations

In order for an FSP to be declared competent the FSP must pass regulatory examinations applicable to the category in which the FSP falls and be found to have necessary minimum experience. The FSP must also have a relevant qualification as prescribed based on the category into which that FSP falls, and comply with Continuous Professional Development.

  • Operational ability

Operational ability requires the FSP to meet business requirements, to confirm competence requirements of the people working for the business and the key individual is required to meet requirements.

  • Financial soundness (of the business)

The business must not be an unrehabilitated insolvent, under liquidation or under provisional liquidation and the assets of the business must exceed its liabilities. The category in which the business falls will determine the liquid assets which the business will be required to maintain. The liquid assets will be equal to a portion of the annual expenditure of the business.

  • Continuous professional development

The category into which the business falls determines the amount of hours which must be completed by the business of professional development over a three year period. The activities which the business participates in may include courses, conferences and seminars as well as structured self-study programmes and workshops.

Exemptions in terms of the Act:

Certain persons and businesses are exempt from the requirements set out above. These exemptions apply to administrators of Pension Funds, administrators of Medical Schemes, managers of Collective Investment Schemes and an authorised user or clearing house under the Securities Services Act.


It is important to bear in mind that a person or business will be required to apply to register as an FSP in terms of the Act where that business or person supplies financial products including the furnishing of financial advice and the rendering of intermediary services. However, certain businesses and persons are exempt from application for a licence as set out in section 45 of the Act and mentioned briefly above. The application process involves various steps and persons and businesses applying to be an FSP must ensure that they meet the “fit and proper requirements” as set out in section 6A of the Act if they intend their application to be successful. It is important that the applicant be able to prove that the requirements are met and that where additional training is required, such as in section 6A(2)(e) which requires continuous professional development, that certificates and proof of such development are maintained.

Please don’t hesitate to contact us for assistance with the registration process or with any queries about whether you need to apply to be an FSP.