- South Africa to set a crypto exchange licensing mandate by the end of November.
- The licensing framework will require exchanges to meet certain requirements to be issued operating licenses.
- The licensing will strengthen investor protection and position the country as a leading jurisdiction of African cryptocurrency activities.
In a move seen as the mother of cryptocurrency regulation on African soil, South Africa has launched an initiative to regulate crypto markets by issuing licenses to digital assets exchanges in the country.
This move responds to the unique need for regulatory measures against crypto markets worldwide and will ensure cryptocurrency exchanges obtain licenses by the end of the year. As proposed by the authorities, the move aims to combat illicit activities and protect investors.
The Need for Regulatory Oversight
According to the report shared with news outlets from the Financial Sector Conduct Authority (FSCA), as many as 20 applications for licenses have been received. FSCA looks forward to more applications before the deadline set on November 30th 2023.
Commissioner attached to FSCA Unathi Kamlana warned that if the crypto industry continues to operate without obtaining a license from the authority, they will be closed and subjected to hefty fines. The commissioner added that regulation is necessary to ensure control and financial safety for investors. He said:
“There is potentially serious harm to financial customers when using crypto products, and therefore it makes sense for us to introduce the regulatory framework,”
Through his explanation, the commissioner indicated that crypto products have the potential risk of causing serious financial harm to investors if left uncontrolled. Kamlana further called for time to determine the measures’ effectiveness and showed why they need collaboration with industry players to implement meaningful changes.
This initiative has left several major trading venues in limbo as they grapple to obtain the license from the authority before the set deadline. The most common companies operating in the country include Binance, Pantera Capital-backed VALR crypto exchange, Digital Currency Group-owned Luno and many others.
The regulator’s communication excluded the crypto miners and NFT service providers, indicating that those offering financial services in crypto assets must have a license to continue operating in the land.
Kamlana said:
“Non-fungible tokens (NFTs) are not covered by the declaration as they act more like traditional art investments, adding that they would continue to monitor the NFT market.”
As the report indicated, the resolution to create a regulation framework never started abruptly in the South African market. FCSA, in collaboration with many intergovernmental fintech working groups, have been working on ways to develop regulations for the crypto and fintech sector.
The licensing process is expected to involve close cooperation between the regulator and the crypto exchanges, where they will need to develop clear operational policies, provide adequate training to their staff and investors, and give regular reporting to meet the requirements set by the authority.
The license will mandate the regulator to call for periodic compliance reports and audits and allow the regulatory investigation to combat illicit activities. The measures will lead to minimal fraudulent activities in cryptocurrencies in the long run.
The trend to regulate crypto markets worldwide is taking shape as many countries join the race to control the industry’s rapid growth. South Africa might be the first to regulate crypto markets, but this will set precedence for many other African countries to follow suit.
Meanwhile, earlier this month, Singaporean Monetary Authority announced that crypto service providers must place customer assets into a statutory trust by the end of the year for security reasons. The action shows a global shift to strict rules on crypto regulation.
