In a significant move for the cryptocurrency industry, South Africa is on the verge of issuing Financial Service Provider (FSP) licenses to crypto service providers. Gerhard van Deventer, the head of Divisional enforcement at the country’s Financial Sector Conduct Authority (FSCA), confirmed this development. The licenses are expected to enhance user protection against scams, a timely intervention as the proportion of South Africans engaged in cryptocurrency activities nears 10% of the population.
The FSCA’s decision comes amid growing concerns over the safety and regulation of digital assets. The licensing process opened for applications between June 1 and November 30, 2023, and has attracted 128 crypto companies already in operation. This move followed the FSCA’s declaration in October 2022, categorizing cryptocurrencies as financial products.
Licensing criteria and consumer protection
The FSCA’s approach to licensing crypto service providers is comprehensive, focusing on various operational and risk management aspects. The authority evaluates the criticality of market services provided by these companies, especially their role in offering payment rails. Furthermore, the FSCA scrutinizes policies related to customer onboarding, data protection, cybersecurity, complaint handling, and counterparty risk.
These evaluations involve due diligence checks in collaboration with the Payments Association of South Africa and the Reserve Bank’s Financial Services Department. Such thorough assessments ensure that only qualified and reliable crypto service providers operate in the South African market.
The move towards stricter regulation is a proactive step to safeguard a growing number of users who predominantly engage in cryptocurrency for transactions and speculative investments. This regulatory framework aims to provide a safer environment for users while acknowledging the potential of blockchain technology and crypto assets in transforming various industries.
South Africa braces for crypto license era
The South African crypto market has seen its fair share of challenges, with the recent declaration of the Mirror Trading International (MTI) operation as a Ponzi scheme by a court in the Western Cape province. This ruling, which followed a hefty fine imposed on the MTI founder by the US Commodity Futures Trading Commission, highlights the urgent need for regulatory oversight in the crypto space.
In addition to regulatory measures, the usage of cryptocurrencies in South Africa is evolving. The increase in withdrawals at crypto ATMs, facilitated by Paycorp’s CryptoExpress app, is a testament to the growing adoption of digital currencies like Bitcoin, Ethereum, USDC, and Tether. Paycorp’s service, which fixes the exchange rate for the duration of transactions, reflects the increasing integration of cryptocurrencies into everyday financial activities.
The anticipation for the first wave of FSP licenses among crypto businesses in South Africa marks a new era in the country’s approach to digital assets. This development is a significant step towards regulating a burgeoning industry and recognizing the potential and legitimacy of cryptocurrencies. As the FSCA continues to evaluate applications, the South African crypto landscape is poised to transform, balancing innovation with consumer protection and market integrity.