In a move signaling a major regulatory shift, South Africa’s Financial Sector Conduct Authority (FSCA) is preparing to potentially license 36 crypto asset service providers (CASPs) in December.

This development comes as part of the African country’s efforts to strengthen its stance on cryptocurrency regulation and oversight.

The FSCA, South Africa’s primary financial watchdog, has finished a meticulous review of 128 applications from CASPs, with
attention to detail high as the new rigorous process underscores the authority’s commitment to fostering a safe and regulated crypto environment.

According to reports from My Broadband, a South African news outlet, the FSCA is set to deliberate on 36 of these applications at its Licensing Executive Committee meeting scheduled for December 12.

This will be followed by the review of an additional 22 applications in February and the final 14 in March.

Evaluating CASPs: The South African FSCA’s Comprehensive Approach

The FSCA’s evaluation criteria encompass a range of critical aspects, including Know Your Customer (KYC) onboarding, data protection, cyber risk management, conflict of interest management, complaints handling, and credit counterparty risk management.

This comprehensive assessment aims to ensure that only firms adhering to the highest standards of operation and consumer protection are granted licenses to operate within South Africa’s burgeoning crypto market.

In conjunction with the licensing news, the FSCA also released its “Crypto Assets Markets Study 2023.

The study reveals that 60% of all traded crypto in South Africa are categorized as “unbacked crypto assets.”

This term encompasses cryptocurrencies other than stablecoins (which hold a 26% market share) and nonfungible tokens (NFTs, with 4% market share), such as Bitcoin.

The study further highlights the revenue range of the average South African crypto asset provider, with 46% reporting annual revenues between 1 and 50 million South African rand.

South Africa’s First Cryptocurrency Regulations Come Into Force

South Africa has displayed a progressively supportive stance towards cryptocurrencies, the South African Reserve Bank (SARB) has confirmed its intention not to impose bans or restrictions on crypto use.

In a collaborative effort, the SARB and the FSCA, along with other institutions, released a consultation paper in 2021-2022, proposing that crypto service providers should register with the Financial Intelligence Centre and adhere to Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) requirements.

Yet, recent turmoil in the crypto market, exemplified by the collapse of FTX and other crypto firms, has accelerated the push for more stringent regulations.

This regulatory shift aims to balance the need for innovation with the necessity of mitigating risks in a highly volatile and decentralized market.

Indeed, cryptocurrency is legal in South Africa, but it is not recognized as legal tender.

Therefore, the regulatory framework established by the government aims to protect investors and prevent fraud while promoting sector growth.

Cryptocurrencies are subject to taxation, with gains from crypto transactions falling under taxable income.

The South African Revenue Service (SARS) considers cryptocurrency an intangible asset for tax purposes, and crypto gains are subject to capital gains tax, with different rates applicable based on the individual’s income tax bracket.

Looking Ahead: A Focus on Safety and Regulation For African Crypto

South Africa’s decision to potentially license 36 crypto firms at once is a pivotal step in enhancing investor safety and establishing a robust regulatory framework in the country’s crypto sector.

The FSCA’s approach, emphasizing comprehensive assessment and adherence to high standards, is indicative of the country’s commitment to nurturing a secure and thriving digital asset market.

This development could serve as a model for other nations grappling with the complexities of crypto regulation, striking a balance between innovation and investor protection.