4 - 7 minute read
Crypto Companies Need License to Operate
South Africa is set to regulate its cryptocurrency industry, with companies needing to apply for a license from the country’s Financial Sector Conduct Authority (FSCA) in the six months starting June 1. While South African crypto companies have welcomed the new licensing regime, they worry that the fine waiting for those that fail to register in time may sink smaller companies or drive away firms that want to enter the market after the deadline has passed.
South Africa ranked 30 on Chainalysis’ global adoption index last year, and is behind other African countries like Nigeria and Kenya in terms of crypto use. But regulators in the country, like those elsewhere, have been trying to supervise the sector, which hit close to $3 trillion in global market capitalization in 2021 before crashing spectacularly in 2022.
In November 2020, South Africa’s FSCA proposed crypto should be treated like financial products, and that firms offering crypto-related services must apply for a license. Following a consultation on the drafted legislation, on October 19, 2022, the FSCA published the final declaration on the licensing requirement.
“This is an extremely positive step for both the crypto industry and South Africans,” said Nick Taylor, head of public policy at Luno for Europe, Middle East and Africa.
“The licensing requirements that will flow from the FSCA’s classification will drive up standards, protect consumers, and give businesses the certainty to invest, innovate and create jobs,” Taylor added.
The regime is being set up to protect consumers, and that is really important, Mpumelelo Ndamane, CEO of South Africa-based crypto wallet provider Nuud Money, told CoinDesk.
Firms that apply for registration in the designated six months will be allowed to continue operating while regulators make a decision on approval. To continue operating, firms will have to show they comply with the country’s norms for financial service providers, including conditions that firms should operate with integrity, be diligent and provide the FSCA with information they request.
The cost of not applying
The cost of not applying is much heavier. If crypto companies do not apply to register but continue operating after the November deadline, they could face a fine of 10 million South African rand ($510,000), up to 10 years in prison, or both, the declaration said.
Crypto companies will likely fall under category one, which has the lowest fee, and is for firms that don’t fit into any of the other categories. But if applicants fall under multiple categories, they may have to do several applications, Meiran Shtibel, associate general counsel at crypto custody platform Fireblocks said.
The fines are not specific to crypto and are a part of the existing penalties under the Financial Advisory and Intermediary Services Act (FAIS), which also applies to other financial firms, Shtibel said, adding the fact that they’re not tailored to the crypto sector may be part of the problem.
Timing
Some companies felt that the timeframe allocated to prepare for the regime was not enough. Crypto companies had actually asked for the application period to be between eight months to up to two years, but the FSCA settled for a six month time frame instead because two years could not be justified, the declaration said.
Crypto companies wishing to get licensed will need to fill out forms asking for information on business activities and shareholders, as well as the financial soundness of the business, the declaration said.
Non-fungible token providers will not need to register at this stage and will be considered in a “future framework,” the declaration said. Mining nodes and node operators would also not be considered.
The Bottom Line
South Africa’s move to regulate its cryptocurrency industry is a positive step for both the crypto industry and South Africans. The licensing requirements will drive up standards, protect consumers, and give businesses the certainty to invest, innovate, and create jobs. Crypto companies looking to operate in South Africa will need to apply for a license from the country’s Financial Sector Conduct Authority (FSCA) in the six months starting June 1. Firms that apply for registration in the designated six months will be allowed to continue operating while regulators make a decision on approval. To continue operating, firms will have to show they comply with the country’s norms for financial service providers. However, if companies do not apply to register but continue operating after the November deadline, they could face a fine of 10 million South African rand ($510,000), up to 10 years in prison, or both.
