Why FSPs should register for crypto asset service provision

The emergence of tokenisation – that is, converting real-world assets such as bonds, equities and property into digital tokens – is revolutionising the financial landscape. While that may sound dramatic, it isn’t. It’s the best description of how rapidly things are changing. For financial services providers (FSPs) in South Africa, embracing tokenisation and crypto asset service provision is not just a competitive edge; it’s a necessity for future relevance.

Clearing up misconceptions

Often people mistakenly equate crypto assets with cryptocurrencies such as bitcoin or ethereum. The word crypto refers to cryptography, the secure underlying technology of the blockchain. The term crypto assets encompasses much more than digital currencies. Tokenised representations of bonds, equities, funds, commodities, and other tangible investments also fall under the category of crypto assets.

Despite this broader scope, most financial advisors cannot offer guidance on these assets because they lack the required crypto asset category for their licenses. This gap limits their ability to meet growing client demand for tokenised financial assets. This risks excluding advisors from a lucrative and rapidly growing business stream.

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There is no other way around it. In this day and age, it is prudent for FSPs to add the crypto asset category to their licenses. Doing so ensures they remain relevant and equipped to offer their clients a comprehensive range of financial services.

Defining tokenisation

At its simplest, tokenisation involves creating a digital representation of real-world financial assets such as bonds, shares, real estate or commodities on a blockchain. This innovation enables fractional ownership of assets, unlocking broad access to traditionally illiquid or high-value investments.

Larry Fink, CEO of BlackRock, is under no illusions about the future. He said: “The next generation for markets, the next generation for securities, will be tokenisation of securities. It’s going to make the markets much more efficient.”

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Let’s look at the scale of tokenisation by way of an analogy. In 2022, the value of the tokenised asset market was $310 billion. A BCG Report prediction estimates that by 2030, the market will be worth $16 trillion—10% of global GDP.

The momentum behind tokenisation is growing fast—advisors who fail to act risk falling behind as competitors seize these opportunities first.

How tokenisation benefits FSPs

1. Expanding investment opportunities to include alternative assets

Investors are always interested in new opportunities, and tokenisation has opened up a world of possibilities. Tokenisation provides access to diverse markets, from real estate and bonds to luxury assets like art. Tokenisation enables FSPs to offer innovative investment products to meet the growing demand for alternative assets. Mesh.trade launched Africa’s first tokenised corporate bond in 2024, with many other innovative products on the horizon. It is the future of investing, and that future is now. Mike Novogratz, CEO of Galaxy Digital: “Tokenisation can fractionalise ownership of anything, democratise access, and unlock global investment.”

1. Democratising wealth with access for all

By enabling fractional ownership, tokenisation allows more people to invest in high-value assets. This levels the playing field and promotes inclusivity in wealth creation. This is a key tenet of Finance 3.0 and opens up many new opportunities.

A recent PwC study revealed that 57% of investors globally actively explore tokenised assets, with retail investors driving much of this interest.

1. Ease of use with enhanced liquidity and market efficiency

Tokenised assets offer greater liquidity, which can be divided into smaller units and traded globally. Blockchain technology ensures seamless transactions and reduced costs. This turns the stodgy old world of classic investing on its head. Vitalik Buterin, co-founder of Ethereum, explained: “Tokenisation isn’t just about efficiency – it’s about creating systems that are fundamentally more fair and accessible.”

1. Transparency

Blockchain’s immutable ledger enhances trust, ensuring definitive and immutable ownership records and secure transactions. Smart contracts automate processes, reducing reliance on intermediaries. This makes the entire investing process quicker, more transparent, and more efficient. In other words, what was complex and difficult before has evolved into an elegant flow that’s almost instant.

Andreas Antonopoulos, a well-known blockchain expert, said: “With tokenisation, trust is no longer dependent on intermediaries. It’s embedded in the system itself.”

Regulatory compliance is a business imperative

South African regulators, including the Financial Sector Conduct Authority (FSCA), are actively developing a framework for crypto assets and tokenisation. Advisors without the crypto asset category on their licenses risk being excluded from this growth opportunity.

By securing this license, FSPs can stay ahead of evolving regulations and offer clients a full spectrum of services, including guidance on tokenised bonds, equities, and other assets. Importantly, FSPs can avoid losing clients to competitors who are better positioned to address the growing demand for crypto asset products.

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This is not just a South African phenomenon. Christine Lagarde, president of the European Central Bank, warned that “regulation is inevitable, and those who prepare today will shape tomorrow’s financial systems”. To risk a cliche, tomorrow has arrived.

The importance of acting now

Venture capitalist Tim Draper said: “Tokenisation is not just the future of finance – it is the future of everything.” The horse has bolted, so by acting early, FSPs are better placed to meet the increasing demand. More and more clients are asking their advisors for tokenised investment options.

Being prepared now gives an FSP a distinct competitive edge and is perceived as a forward-thinking, tech-savvy advisor. This doesn’t even take into account the new revenue streams a crypto asset category on their license opens.

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The best advice for FSPs is: Don’t wait. Register for crypto asset service provision now and position yourself at the forefront of Finance 3.0 and the future of capital markets.

Connie Bloem is co-founder and MD of Mesh.trade.

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