South Africa’s financial regulator has announced that all cryptocurrency exchanges operating in the country will be required to obtain licenses by the end of this year.
According to Unathi Kamlana, the Commissioner of the Financial Sector Conduct Authority (FSCA), approximately 20 applications for licenses have already been received since the licensing process opened a few weeks ago. Kamlana anticipates more applications to be submitted before the November 30 deadline. The FSCA is prepared to take “enforcement action” against exchanges that continue to operate without a license after the deadline, which may include closure or fines.
Kamlana emphasized the potential risks associated with crypto products, stating that there is a serious threat to financial customers. Consequently, implementing a regulatory framework is deemed necessary to protect consumers. He acknowledged that the effectiveness of the measures will be assessed over time, and the FSCA is committed to collaborating with the industry to refine and make adjustments as needed.
South Africa, as the most advanced economy in Africa, is the first country on the continent to enforce licensing requirements for digital asset exchanges. Notable exchanges, such as Luno (owned by Barrry Silbert’s Digital Currency Group) and Pantera-backed VALR, have emerged from South Africa. Global platforms like Binance, which operate in the country, will also need to obtain licenses. Luno’s local unit manager, Christo de Wit, has confirmed that the company has already submitted its license application and is awaiting feedback from the FSCA.
Regulators and policymakers worldwide have been tightening regulations in the cryptocurrency sector, prompted by a series of company failures, culminating in the bankruptcy of the Bahamas-based exchange, FTX. In April, European lawmakers approved the EU’s Markets in Cryptoassets (MiCA) law, which establishes the first set of rules for the crypto industry in the bloc. Hong Kong also implemented new regulations to license exchanges last month.
South Africa has experienced several significant cryptocurrency scams in recent years, resulting in the loss of billions of dollars in investments. Examples include the Africrypt platform, operated by the Cajee brothers, where 70,000 Bitcoins disappeared in 2021, and the fraudulent multilevel marketing scheme Mirror Trading International Proprietary.
The FSCA has been actively involved in formulating regulations for the crypto and fintech sectors. It collaborates with an intergovernmental fintech working group that includes major financial sector regulators and policymakers like the National Treasury and the South African Reserve Bank.
While most banks in South Africa do not offer services to crypto platforms due to associated risks, the central bank has urged them to reconsider in order to enhance visibility into the sector. Kamlana stated that being part of the formal sector and subject to the tight regulations imposed on banks offers greater transparency and reassurance.
In addition to licensing requirements, the FSCA aims to protect consumers through measures such as financial education and increasing public awareness about cryptocurrency products.