Could FSCA licenses be the growth catalyst crypto needs?

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Samukele Mkhize | Head/MLRO | Country Compliance | South Africa | Binance | mail me |


As a global leader in the cryptocurrency industry, we recognise the significance of the South African Financial Sector Conduct Authority’s (FSCA) recent decision to include cryptocurrencies within its licensing legislation.

This move comes at a crucial time for the evolution of crypto as an investment asset class in South Africa, signalling the maturation of the local crypto market and a step towards integrating digital assets into the mainstream investment ecosystem.

The licensing of cryptocurrency asset service providers (CASPs) aligns with global crypto investment compliance standards and coincides with the recent dramatic increase in crypto adoption compared to traditional investment asset classes.

Below are responses to commonly asked questions regarding the FSCA’s licensing of crypto asset service providers (CASPs) in South Africa.

Why has the FSCA decided to adopt licensing for crypto asset service providers?

The FSCA wants to protect consumers, align with global standards, and create a secure and transparent crypto trading environment.

Licensing is a key step in making crypto a mainstream investment option. These licenses cover a range of services within the crypto industry, such as advisory, exchanges, crypto asset arbitrage, digital custodial and wallet services, payment gateways, tokenisation services, crypto-to-fiat (and vice versa) conversions, and the provision of index-based products.

Our comment

The FSCA’s decision to license CASPs is a positive step towards creating a regulated and secure environment for crypto users in South Africa. This move will help protect consumers and foster trust in the crypto industry, which is crucial for its long-term growth and success.

What factors did the FSCA consider when evaluating license applications for crypto companies?

The FSCA evaluated (and will continue to evaluate in the future) the criticality of market services, whether the companies offer payment rails, and policies regarding customer onboarding, data protection, cyber risks, handling of complaints, and counterparty risk.

Due diligence checks were also performed with the Payments Association of South Africa and the Reserve Bank Financial Services Department.

Our comment

The FSCA’s comprehensive evaluation process for CASP license applications demonstrates its commitment to creating a robust and secure regulatory framework. This thorough approach will help ensure that only reputable and compliant companies operate in the South African crypto market. This also serves as an opportunity to bridge the gap between traditional finance and crypto and encourage crypto companies to open business bank accounts in South Africa.

What are the hoped-for outcomes of this licensing regime?

The anticipated outcomes include increased investor protection, a reduction in market abuse, operational risks, and financial crimes, and the advancement of South Africa’s financial sector by aligning with global trends. The aim is also to boost investor confidence and encourage more informed investment in crypto assets.

Our comment

The licensing regime will help create a more stable and trusted crypto industry in South Africa. By adhering to clear regulations, CASPs can grow their operations and contribute to the overall growth of the crypto market in the country.

What does the licensing mean for participants in the SA crypto space?

For CASPs, it means validation and growth opportunities. For consumers, it means more confidence and safety. For the market, it means more regulation and investment.

Our comment

The licensing regime presents a significant opportunity for the South African crypto industry to mature and grow. By operating within a clear regulatory framework, CASPs can build trust with consumers and attract more mainstream investors. This, in turn, will drive innovation and competition, ultimately benefiting the entire crypto ecosystem.

How does the FSCA view the responsibility of crypto firms in terms of consumer protection?

The FSCA views consumer protection as a primary concern, advising consumers to engage only with licensed crypto firms.

It strongly suggests that the absence of a license should be considered a significant red flag, and urges consumers to scrutinise the specific licenses held by crypto firms before engaging with them.

Our comment

The FSCA’s emphasis on consumer protection aligns with our values. As a leading global crypto exchange, we believe that prioritising user safety and security is essential for the long-term success of the industry. By working collaboratively with regulators like the FSCA, we can create a safer and more trustworthy crypto environment for all participants.

What happens to entities that fail to register or continue operating without a licence?

Entities that continue operations without applying for registration could face a fine of up to R10 million or even a criminal conviction and a prison sentence of up to 10 years. The regulator is also prepared to shut down non-compliant firms.

A notable trend with this licensing process was the substantial number of applications submitted by organisations already registered as FSPs. In part, this is because the crypto licencing essentially ‘piggybacks’ on existing FSP regulations, but it also indicates that crypto products are moving toward mainstream adoption in South Africa, as established financial entities show increasing interest in incorporating crypto into their services.

With all this in mind, the FSCA’s licensing requirements shouldn’t be seen merely as regulatory measures; they have the potential to be enablers of growth and innovation in a South African investment market that is in dire need of both.

What are your thoughts on the companies that have received their licenses in South Africa already? 

This progress is incredible. It represents a progressive regulation of the sector, providing greater clarity for industry players. We view this as a positive step that can enhance trust, and user protection, and enable greater crypto adoption.

Which markets have we received a license in? 

Around the world, we are in the process of obtaining crypto-specific licenses and have already secured multiple permissions globally – in Spain, Italy, France, New Zealand, Bahrain, Abu Dhabi and many other jurisdictions – more than any other exchange.

We are particularly proud to have received a Virtual Asset Service Provider (VASP) licence from Dubai’s Virtual Assets Regulatory Authority (VARA). This milestone allows us to extend our services to the retail market alongside qualified and institutional investors.


 



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