South Africa wants to enforce a licensing regime for crypto companies operating within its borders. The move comes as Africa’s most developed economy, with one of the highest numbers of crypto users in the region, has also been experimenting with central bank digital currencies (CBDCs). Crypto companies are expected to apply for the license by November this year.
Received 20 license applications from exchanges
South Africa’s financial regulator, the Financial Sector Conduct Authority (FSCA), has received about 20 license applications since the process opened a few weeks ago, FSCA Commissioner Unathi Kamlana said in a recent interview with Bloomberg. He added that the regulator plans to take “enforcement action” against crypto exchanges that fail to register.
Companies have until November 30 to apply for a permit, after which the regulator plans to take enforcement action against those operating without a permit. “There is potentially serious harm to financial clients when using crypto products, which is why it makes sense for us to introduce the regulatory framework,” said Kamlana.
“Time will tell the effectiveness of our measures, and we will continue to work with the industry to make changes where and when necessary.”
South Africa, as the continent’s most developed economy, is the first to require the exchange of digital assets to obtain licenses. The move will affect major trading platforms such as Luno, owned by Barry Silbert’s Digital Currency Group, the Pantera-backed VALR, and global platforms such as Binance.
The tightening of regulations in the cryptocurrency sector is a global trend, with regulators and policymakers worldwide introducing stricter regulations in response to corporate collapses and scandals. The bankruptcy of the Bahamas-based exchange FTX and several large-scale crypto scams in South Africa have heightened concerns and prompted regulatory action.
In Europe, lawmakers have passed the EU Markets in Cryptoassets (MiCA) Act, marking the bloc’s first set of rules for the crypto industry. Similarly, Hong Kong recently introduced new rules for license exchange.
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South Africa rolls out Instant Payment Services and experiments with CBDCs
South Africa announced the launch of PayShap in mid-March. This real-time digital payment service aims to provide South Africans with safer, faster and significantly more convenient payment options. The service was created as a collaboration between Bankserv, a clearinghouse owned by South African commercial banks, and the South Africa Reserve Bank.
“The launch of PayShap is an important milestone in the modernization of payments in South Africa. Payshap aims to reduce consumers’ reliance on cash and transition to a future with more digital payments,” Mpho Sadiki, head of real-time payments at BankservAfrica, said at the time.
The country is also experimenting with CBDCs and has already launched several trials. Last April, the South African Reserve Bank (SARB) completed the second phase of its large-scale central bank digital currency (wCBDC) trials, according to an official announcement.
South Africa in particular has also been involved in Project Dunbar, a technical experiment led by the BIS Innovation Hub that has successfully developed prototypes to prove the viability of the multi-CBDC concept. The Reserve Bank of Australia, the Central Bank of Malaysia and the Monetary Authority of Singapore were also involved.
Push for regulation as crypto scams spread
South Africa has been a hotbed for crypto scams in recent years, leading to the loss of billions of dollars in investments. The Cajee brothers’ Africrypt, which disappeared with 70,000 Bitcoin in 2021, is one of the biggest crypto scams in the country’s history.
In addition, the multi-level fraudulent marketing program Mirror Trading International Proprietary (MTI) was also active in the country. MTI was a multi-level international marketing program linked to cryptocurrency investments and forex trading pool.
The FSCA has been actively working on crypto and fintech regulation, working with an intergovernmental fintech working group that includes key financial industry regulators and policymakers, such as the National Treasury and the South African Reserve Bank.
In addition to licensing, the FSCA also focuses on consumer protection measures. This includes financial education initiatives and awareness campaigns to educate individuals about the risks associated with investing in cryptocurrency.
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About the author
Ruholamin Haqshanas is an accomplished crypto and financial journalist with over two years of writing experience in the field. He has a deep understanding of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi) and the emerging market for non-fungible tokens (NFTs). He is an active user of digital assets for remittances.