The South African Financial Sector Conduct Authority (FSCA) has mandated that all crypto exchanges register and obtain operating licenses by the end of 2023.
According to the regulator, companies that do not comply with this guideline and continue to operate without a license will face the possibility of being shut down or paying fines.
The FSCA received around 20 applications after two weeks of opening license registrations.
FSCA Introduces New Crypto Exchange Licensing Guidelines to Protect Clients
kamlana saying during an interview in Pretoria that there is serious potential harm for financial clients when using crypto products and therefore it makes sense that we present the regulatory framework.
Time will tell the effectiveness of our measures, and we will continue to work with the industry to refine and make changes where and if necessary, he added.
South Africa became the first African country to require cryptocurrency exchanges to obtain licenses. Most of the major trading platforms in Africa emerged from South Africa. These include Digital Currency Group subsidiary Luno, and Pantera-backed VALR.
Other global crypto exchanges like Binance have branches in South Africa and will now need a license.
Christo de Wit, manager of Luno’s South African unit, says the company has submitted its license application and is awaiting feedback from the FSCA.
Strict scrutiny on crypto exchanges
Policymakers and regulators around the world have moved to tighten their hold on the crypto industry.
The need for strict rules and thorough scrutiny of crypto exchanges accelerated after the crypto chaos engineered by FTX.
Several global regulators have introduced rules to govern the crypto market. For example, in May, EU lawmakers adopted the Markets in Crypto Assets (MiCA) regime, the region’s first comprehensive rules dedicated to the crypto industry.
Also, last month, Hong Kong implemented new guidelines for the licensing of cryptocurrency exchanges.
South African Regulators Seek More Crypto Transparency To Weed Out Bad Actors
Furthermore, the prevalence of scams in the South African crypto industry prompted the regulator to introduce measures to protect investors.
South Africa has appeared on the scene of most of the world’s largest crypto scams that wiped out billions of dollars in investor funds.
Among these is the loss of 70,000 Bitcoin in 2021 from Africrypt, the platform owned by the Cajee brothers.
The Africrypt incident is among the largest cryptocurrency thefts in the world. Other case study is Mirror Trading International Proprietary, a fraudulent multi-level marketing scheme that caused users to lose billions of dollars worth of Bitcoin.
After these incidents, the FSCA woke up to crypto and fintech regulations. The regulator collaborated with an “intergovernmental financial technology working group”, which includes South Africa’s leading financial sector regulators and policymakers.
These include the National Treasury and the Reserve Bank of South Africa.
Meanwhile, South African lenders do not service crypto platforms due to the associated risks.
However, the central bank has told them to reconsider their stance to allow for more transparency in the cryptocurrency sector.
Kamlana said there is greater transparency if you are in the formal sector controlled by an entity as strictly regulated as a bank.
