South Africa’s Crypto Crackdown: Licenses, Local Presence & Compliance Made Mandatory

Cryptocurrency exchanges worldwide face growing regulations, and South Africa is stepping up with some bold moves. The Financial Sector Conduct Authority (FSCA) recently checked out 128 applications from crypto service providers and plans to review 36 more in December, marking a crucial moment for the nation’s crypto scene.

The stringent actions are based on the FSCA’s evaluation method which includes aspects like customer onboarding, data protection, and risk management. 

FSCA’s In-Depth Look at the Crypto World

Their “Crypto Assets Markets Study” revealed that 60% of crypto traded are “unbacked assets,” excluding stablecoins and NFTs. Most providers have annual revenues between $53,000 and $2.7 million, with only 8% earning more than $5.4 million. In November 2022, the market reached a transaction value of $427 million. The FSCA warned unlicensed providers to comply or face potential penalties or closure after the deadline in 2023.

FCSA is on the verge of regulating foreign-based Crypto Asset Financial Service Providers (FSPs). Looking at the risk associated with the FSCA’s survey found that around 10% of these entities operate in South Africa but have headquarters abroad. To bolster oversight and accountability, the FCSA has issued a mandatory order to set up a local office presence for these offshore-based companies.

Filling the Regulatory Gaps 

The FCSA’s Crypto Assets Market Study identified gaps in the regulatory framework after the classification of crypto assets as financial products in October 2022. The existing regulations lack specificity tailored to crypto services, necessitating a need for enhanced, innovation-friendly regulatory structures.

Cape Town leads in hosting Crypto Asset FSP headquarters, followed by Johannesburg and Pretoria, reflecting South Africa’s technology hub status. These firms registered over ZAR 8 billion in transactions in November 2022, focusing predominantly on retail customers through crypto exchanges.

Market Focus

Here’s an interesting tidbit: Over half of the 47 crypto financial service providers mainly cater to retail clients, mostly through trading fees. Their revenues range from ZAR 1 million to ZAR 50 million, with 10% making money from both regulated and unregulated financial services.

Since these providers earned most of their money from trading fees, administrative, and consulting fees. Many firms made money from regulated and unlicensed financial services. Most Crypto Asset FSPs focused on unbacked crypto assets like Bitcoin and Ethereum, then stablecoins and other digital tokens. 

Widening the Lens: What’s Happening Around the World?

Around the globe, countries are intensifying crypto regulations in response to last year’s market turbulence. The European Union’s MiCA regulation aims to establish comprehensive frameworks, while Hong Kong, India, and Singapore have introduced new licensing rules for exchanges, marking a significant trend toward stricter oversight in the crypto market. South Africa’s stringent actions may inspire other nations facing similar challenges. 

Also Read: Tether and Binance in the Spotlight: A Deep Dive into Crypto’s Regulatory Challenges