• As of the end of October, the FSCA had already received 93 applications for Crypto Asset Provider licenses, redefining the crypto regulation sphere.

• An additional 128 crypto exchanges have submitted their applications for licensing.

• One noteworthy trend is the substantial number of applications submitted by organizations already registered as Financial Service Providers (FSPs) with the FSCA.

In a pivotal move towards embracing the burgeoning crypto industry, the Financial Sector Conduct Authority (FSCA) in South Africa finds itself at the epicentre of a regulatory revolution.

With the deadline for Crypto Asset Provider license applications set for November 30, the FSCA has become the focal point for entities looking to operate in the cryptocurrency space within the country.

The application surge reflects a growing interest in crypto-related services and products, positioning South Africa as a trailblazer in the global race for comprehensive crypto regulation.

Application Landscape

As of the end of October, the FSCA had already received 93 applications for Crypto Asset Provider licenses. However, 14 applications were subsequently withdrawn, bringing the active applications to 79.

Concurrently, an additional 128 crypto exchanges have submitted their licensing applications, signalling a robust demand for regulatory approval within the South African crypto ecosystem.

South Africa’s road to regulation

In 2020, the Financial Sector Conduct Authority (FSCA) proposed classifying crypto assets as financial products. This marked a significant step in recognizing the evolving nature of the cryptocurrency landscape within South Africa.

The subsequent year, in 2021, South Africa actively participated in the Financial Action Task Force’s (FATF’s) Mutual Evaluation Review (MER). The findings of this evaluation underscored the necessity for stronger regulations surrounding crypto assets, setting the stage for further regulatory developments.

The year 2022 witnessed the introduction of the Conduct of Financial Institutions (COFI) Bill. This bill is anticipated to eventually replace the Financial Advisory and Intermediary Services Act (FAIS Act) as the primary regulatory framework governing crypto assets in South Africa.

In October 2022, a pivotal moment occurred when the FSCA officially declared crypto assets as financial products under the FAIS Act. This declaration implied that all cryptocurrency service providers (CASPs) must obtain licenses from the FSCA to operate within the legal framework.

Moving forward to May 2023, the FSCA published the final declaration outlining the licensing requirements for CASPs. Existing providers were given until the end of 2023 to apply for a license, emphasizing a transition period to comply with the new regulatory framework.

Simultaneously, in December 2022, the FSCA took proactive measures by issuing an Information Request to CASPs. The objective was to gain deeper insights into their activities, identify potential consumer risks, and establish a comprehensive understanding of the crypto landscape within the country.

The FSCA has initiated a crypto market study as part of its ongoing efforts. This ongoing study aims to collect additional data, providing valuable insights that will inform and shape future regulatory frameworks for the crypto industry in South Africa.

The proactive approach of conducting a market study highlights the commitment to staying abreast of developments in the crypto space and ensuring effective and informed regulatory decisions.

In summary, the timeline of regulatory developments in South Africa reflects a progressive and dynamic approach to addressing the challenges and opportunities presented by the crypto industry.

From the initial proposal in 2020 to the ongoing market study, South Africa is actively shaping its regulatory landscape to foster a secure and thriving environment for crypto assets and service providers.

License Types and Services

The FSCA has outlined various license types for crypto asset providers, each catering to different facets of the crypto industry.

These include advisory services, exchanges, crypto asset arbitrage, digital custodial/wallet services, payment gateways, tokenization services, crypto-to-fiat (and vice versa) & crypto-to-crypto conversion, and provision of index-based products.

1. Advisory Services: Offering advice exclusively to clients on different crypto assets.
2. Exchanges: Providing a marketplace for multiple buyers and sellers of various crypto assets.
3. Crypto Asset Arbitrage: Involves purchasing crypto assets from an offshore exchange trading at a discount and selling them in South Africa at a premium, capitalizing on price discrepancies.
4. Digital Custodial/Wallet Services: A digital service enabling electronic payments and storage of digital or crypto assets.
5. Payment Gateway: Facilitating payment rails for payment processors in the digital or crypto asset environment, enabling digital payments and fiat exchange.
6. Tokenization Services: Creating tokens representing real-world assets such as shares or share indexes.
7. Crypto-to-Fiat (and Vice Versa) & Crypto-to-Crypto Conversion: Providing services that enable clients to convert fiat for a crypto asset and vice versa and convert one crypto asset for another.
8. Provision of Index-Based Products: Creating reference instruments tracking the performance of a basket of crypto assets.

Positive Indicators for Crypto Regulation in Africa

The overwhelming interest in and surge in applications for Crypto Asset Provider licenses in South Africa are positive markers for crypto regulation in the country and across the African continent.

While many countries still grapple with the complexities of regulating cryptocurrencies, South Africa’s proactive approach sets a precedent and paves the way for comprehensive regulation.

South Africa Ahead of the Curve

South Africa’s swift and proactive stance on crypto regulation propels the country ahead of its global counterparts.

While many nations continue to grapple with the nuances of crypto regulation, South Africa is taking leaps, showcasing a commitment to embracing cryptocurrencies’ potential rather than shying away from them.

Accelerated Approval Process

Remarkably, 36 crypto asset provider applications have already completed the assessment stages. This has led to speculation that these entities may secure their licenses as early as March 2024.

The expedited approval process demonstrates the FSCA’s efficiency and underscores the commitment to fostering a conducive environment for crypto-related businesses in South Africa.

Mainstream Adoption Signals

One noteworthy trend is the substantial number of applications submitted by organizations already registered as Financial Service Providers (FSPs) with the FSCA. According to Tarris Arnold, the business development manager at Luno, a prominent cryptocurrency exchange, 74 applications fall into this category.

This surge in interest from established financial entities indicates that crypto products are inching closer to mainstream adoption in South Africa.

Crypto Regulation that Works

South Africa’s approach to crypto regulation serves as a testament to the effectiveness of a well-thought-out regulatory framework. While other countries worldwide grapple with indecision and delays crafting crypto regulations, South Africa has seamlessly leveraged its existing regulatory infrastructure to integrate crypto into its financial landscape.

As South Africa emerges as a frontrunner in the global race for comprehensive crypto regulation, the surge in license applications indicates a growing acceptance and recognition of the potential benefits that cryptocurrencies and blockchain technology can bring to the financial sector.

The FSCA’s proactive stance, the expedited approval process, and the interest from established financial entities all contribute to positioning South Africa as a crypto-friendly nation that others can look to for inspiration in crafting their regulatory frameworks.

As the world witnesses the evolution of the crypto landscape, South Africa stands at the forefront, leading the way towards a more inclusive and regulated crypto ecosystem.