South Africa Demands Crypto Exchanges Licensing By Year-End
According to South Africa’s financial regulator, The Financial Sector Conduct Authority (FSCA), crypto exchanges operating in the country have been demanded to acquire licenses by the end of the year.
By Anna B Kiwanuka
South Africa’s financial regulator, the Financial Sector Conduct Authority (FSCA), has announced that all cryptocurrency exchanges operating in the country must obtain licenses by the end of the year. The move aims to enhance consumer protection and mitigate the potential risks associated with crypto products. FSCA Commissioner Unathi Kamlana revealed that approximately 20 applications for licenses have already been received since the licensing process commenced a few weeks ago, and more are expected before the November 30 deadline.
Kamlana emphasized that the FSCA is prepared to take enforcement action against non-compliant firms, including potential closure or financial penalties. By implementing a regulatory framework, the FSCA aims to address the significant harm that can befall financial customers utilizing crypto products. The effectiveness of these measures will be evaluated over time, with continuous collaboration between the regulatory body and the industry to refine and make necessary changes.
South Africa’s status as the most advanced economy in Africa makes it a crucial hub for digital asset exchanges. Notable trading platforms originating from South Africa include Luno, owned by Barry Silbert’s Digital Currency Group, and Pantera-backed VALR. In addition to local exchanges, international platforms such as Binance also operate within the country and will be required to secure licenses. Christo de Wit, the manager of Luno’s local unit, confirmed that the company has already submitted its license application and is awaiting feedback from the FSCA.
The move by South Africa to regulate crypto exchanges follows a global trend of tightening regulations in the cryptocurrency sector. Various jurisdictions worldwide have implemented measures to enhance oversight and protect consumers, responding to incidents of company collapses and fraud. For instance, the bankruptcy of the Bahamas-based exchange FTX highlighted the need for stricter regulations. In the European Union, the Markets in Cryptoassets (MiCA) law was recently passed, providing a regulatory framework for the crypto industry. Hong Kong also implemented new regulations to license exchanges in the previous month.
South Africa has unfortunately witnessed several significant cryptocurrency scams in recent years, resulting in the loss of billions of dollars in investments. These include the Africrypt platform, operated by the Cajee brothers, which vanished with 70,000 bitcoins in 2021, and the fraudulent multilevel marketing scheme Mirror Trading International Proprietary. The FSCA has been actively engaged in developing crypto and fintech regulations, collaborating with an intergovernmental fintech working group that includes the country’s major financial regulators and policymakers such as the National Treasury and the South African Reserve Bank.
While most South African banks have refrained from providing banking services to crypto platforms due to associated risks, the central bank has encouraged them to reconsider. By involving traditional financial institutions, the central bank aims to gain better visibility into the crypto sector, promoting greater transparency. Commissioner Kamlana highlighted the advantages of being within the formal sector and under the regulation of tightly controlled entities like banks, as it instills a sense of security.
To safeguard consumers, the FSCA intends to implement measures such as financial education and increasing public awareness about cryptocurrency products. These initiatives will contribute to a more informed and educated user base, reducing the likelihood of falling victim to scams or fraudulent schemes.