How Crypto Licensing in South Africa will Stimulate Market Growth
Jul 25, 2024
Key Insights
- South Africa, through the FSCA, requires crypto companies to obtain digital asset exchange licenses.
- The licensing regime mandates transaction reporting and compliance.
- The integration of crypto payments in everyday transactions, like those at Pick n Pay, and new payment systems from companies like Stitch, highlights the growing mainstream adoption and potential for digital currency to enhance financial services accessibility.
Primer
South Africa stands out as Africa’s leading destination for retail cryptocurrency use, ranking 31st globally. According to Chainalysis’s Crypto Adoption Index 2023 report, it is also the second highest in Africa for overall crypto adoption.
South Africans have the largest annual cryptocurrency purchasing power in Africa, with an average yearly spend of $51.38 per trader and the highest number of internet users aged 16 to 64 owning cryptocurrencies (18%), surpassing Nigeria.
Due to this, it records high transaction values in the region.
The potential of this market has attracted the attention of the Financial Sector Conduct Authority (FSCA).
In response, the FSCA has already issued 75 operating licenses for cryptocurrency companies in South Africa.
This is amidst 355 corporations clamoring for the license.
Some big-name beneficiaries include VALR, Luno, RVX SA Capital, Peresec and Unum Capital.
Crypto licensing in South Africa is a tremendous stride since it becomes the first African country to require the acquisition of digital asset exchange licenses.
A New Crypto Licensing Chapter Unfolds in South Africa
The preamble for this progressive step is the FSCA declaring crypto assets as financial products in 2022. In a clever twist, the FSCA integrated crypto exchanges into the Financial Advisory and Intermediary Services (FAIS) Act to ensure equal opportunities and comprehensive oversight. Key FSCA licensing considerations included multiple services, market service significance, customer onboarding, cyber risks, complaint handling, data protection, counterparty risk, and market support services such as payment and custodial rails.
There’s no room for making mistakes.
The FSCA also conducted a maker survey to determine operating policies and processes, including due diligence with regulatory agencies. The licenses apply to consulting services, exchanges, virtual custodial/wallet services, payment systems, crypto asset arbitrage, and tokenization services. Authorized service providers are also subject to post-licensing oversight.
In support, the licensing period (June 1 to November 30, 2023) was meant to enable current cryptocurrency platforms to continue operating while complying with new rules.
Improved Investor Protection
The FSCA’s comprehensive evaluation procedure guarantees that only reputable and compliant enterprises participate in South Africa’s cryptocurrency industry. As the cryptocurrency market is regulated, companies stand to benefit from increasing legitimacy and investor confidence. In this case, crypto will become a mainstream investment option. Reduced operational risks will result in increased crypto investment in South Africa.
Improved Customer Protection
Crypto asset trading platforms are required to report transactions involving crypto assets. Therefore, the legislation will safeguard users from risks while also preventing money laundering and terrorist funding. Customers only interact with licensed crypto firms since they can check what they are licensed for. The results have been instant, with the country witnessing a 43% increase in first-time crypto buyers since March on Luno’s platform. This underlines the previous growing trends in South Africa towards Bitcoin and stablecoins.
Advancement of South Africa’s Financial Sector
Digital currency payments and purchases are likely to skyrocket. Already, Pick n Pay supermarket had begun taking bitcoin payments using the Lightning Network. Crypto exchanges Luno and VALR have partnered with Pick n Pay to enable crypto transactions. Besides, a fintech company, Stitch, introduced its ‘Pay with crypto’ payment system targeting online marketplaces, e-commerce platforms, gambling, trading sites, and travel companies. Blockchain-based payment systems will increase transaction efficiency and enhance access to financial services that were previously unavailable to certain populations. .
Crypto licensing regime in South Africa highlights the necessity for balanced regulatory approaches, which Nigeria and Kenya should adopt to harness the benefits of crypto while avoiding stifling its economic impact.
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