On January 24, 2024, the Financial Sector Conductor Authority (FCSA), the South African top financial regulatory body, announced that the decision on the 50 pending licenses for crypto asset service providers (CASPs) will come in the coming weeks. Gerhard van Deventer, head of enforcement at the FCSA, revealed the details during a press briefing. Additionally, he also confirmed that the decision will depend on the outcomes of the licensing committee meetings scheduled to occur in February and March.
This development comes against the backdrop of an earlier warning that all crypto exchanges in South Africa must obtain CASP licenses before November 2023 to continue operating. The warning led to an influx of several applications, many of which the agency will (expectedly) decide on in the coming weeks.
While at least 105 crypto-related companies initially applied for the CASP license, 20 pulled out prematurely, and only 50 of the rest submitted their applications to the FCSA licensing committee for consideration. According to the statement from the regulator, the first set of CASP licenses in South Africa will (expectedly) roll out in the stated period.
About the South African Crypto Regulatory Journey
In October 2022, the South African Financial Sector Conductor Authority (FCSA) took the first step towards crypto regulation by declaring all crypto assets as financial products. The regulator described a crypto asset as a ‘digital representation of value’ not issued by a central bank, uses cryptographic technology, and uses a distributed ledger. While the South African view of cryptocurrency is more of a digital asset than a payment system, it released guidelines for businesses working with cryptocurrencies anyway, marking the first informal attempt at crypto regulation.
On July 22, 2023, the FCSA officially announced that all crypto exchanges doing business in South Africa must obtain a license by November 30, 2023, to continue operating legally, leading to an influx of applications from cryptocurrency-related businesses and exchanges. The South African regulator also confirmed that companies that applied for licensing may continue operating pending the issuance of their licenses. However, those who failed to apply before the November 30, 2023, deadline became non-compliant and had to shut down or face penalties.
Why Are the Applicants Pulling Out?
At least 20 of over 100 entities that applied for the crypto license have withdrawn their applications, automatically disqualifying them from dealing in crypto assets within the South African market. While there is no reliable way to determine the reasoning behind the mass withdrawal, Gerhard van Deventer, the FCSA head of enforcement, suggested the requirements for the license might have intimidated some of the applicants, forcing them to pull out their application.
Addressing the challenging requirements, van Deventer (specifically) pointed to a specific requirement of having an industry expert within the company with specific and relevant experience and qualifications, a requirement he seems to think most applicants have no realistic chance of meeting. Companies withdrawing their applications must either stop offering crypto assets or move their business out of South Africa until they become ready to reapply for the license.
The Crypto Community Lauds the Crypto Licensing Push
Reacting to the sudden push for crypto exchanges to obtain licenses from the financial regulator, many observers in the cryptocurrency space expressed support, seeing the move as necessary to curb the growing menace of cryptocurrency scams in the country.
“The requirement for licensing is a move in the right direction as it validates the operations of crypto companies,” Luno’s Country Manager for South Africa, Christo De Wit, commented. Echoing similar sentiments, Cedric Jeannot, CEO at Be Mobile Africa, expressed his support for crypto licensing in African markets and how it helps further the push for proper regulation.
“By introducing licensing, the government is pushing for proper regulation which serves the commercial interests of all parties in the ecosystem,” Jeannot said.
What is Coming Next?
The evaluation process aims to weed out scams and incompetent exchanges by evaluating the operational policies of each applicant. The licensing committee will review each applicant’s know-your-customer (KYC) procedure, data protection policies, and cybersecurity infrastructure. One can expect all surviving firms in the crypto licensing race to bag the crypto asset service provider license by February or March, as they appear to have undergone some preliminary screening already.
When the licenses roll out, South African crypto users may want to stick with regulated operators and exchanges to lower the risk of falling to scams.