South Africa’s Financial Sector Conduct Authority (FSCA) has issued the country’s first batch of crypto asset service provider licences to up to 60 crypto companies. According to law firm Allen & Overy, up to 60 licences were issued by March 31, 2024.
A local media platform report indicates that this is coming after the FSCA revealed in mid-March that it had approved 59 licences and was expected to issue them by the end of the month. The FSCA told Bloomberg last month that more than 300 crypto-asset providers sought approval.
“We are processing those licencing applications and we are doing so in a phased manner given the numbers,” FSCA Commissioner Unathi Kamlana told the press following that announcement.
South Africa has opted not to develop a separate framework for crypto operators and instead will oversee the firms under the existing Financial Advisory and Intermediary Services Act. The FSCA had given crypto providers until November 30 to apply for licence-facing enforcement action.
Thus far, only two providers — Jaltech and Luno — have publicly announced that they have been approved for a licence. Last week, Jaltech announced that it was one of the few investment product providers that would receive a crypto asset service provider (CASP) licence.
The crypto company acknowledged that FSCA’s approval shows South Africa is in step with global trends. It also believes this gives the green light for institutional and retail acceptance and adoption of the asset class within the South African financial sector.
What SA’s crypto licence means
The implication is that crypto asset providers will now be subject to similar licencing hurdles and compliance requirements to obtain and keep their licences as other financial services providers. Part of this compliance includes reporting breaches, incidents, and financial weaknesses to allow for intervention.
Also, with crypto exchanges falling under the FAIS Act, consumers will have recourse and protections that don’t exist right now, with the regulator being able to take enforcement action if an operator breaches any of the law’s requirements.
“When entrusting crypto assets to a service provider, South African consumers can now check whether [it] is licenced by the FSCA and take some comfort that [it] is not beyond the reach of the law in South Africa,” Unathi Kamlana explained.
Another consequence is that CASPs must now ‘FICA’ their customers (known as KYC elsewhere), report suspicious transactions, and otherwise comply with South Africa’s anti-money laundering regulations.
To obtain a licence, a crypto asset FSP must meet several requirements to ensure compliance and protect consumers. These stringent measures ensure that crypto asset FSPs operate ethically, competently, and with financial stability, said Kelle Gagné, counsel at law firm Allen & Overy.
They include:
- Provide routine business information and disclose details about their directors, trustees, partners, members, key individuals, and representatives.
- Individuals must meet the ‘Fit and Proper requirements for Financial Services Providers’, demonstrating honesty, integrity, competency, and engagement in continuous professional development.
- Applicants and their key individuals and representatives must have no history of legal or professional misconduct and must not be under investigation or proceedings that could result in a conviction.
- Competence is assessed based on experience, qualifications, and performance in regulatory exams.
- If not regulated as a bank or insurer, the applicant must demonstrate financial soundness, with different requirements depending on whether the applicant will hold or receive client assets.
- All applicants must meet working capital and liquidity requirements, with higher thresholds for those holding client assets.
- Operational ability is also vital, requiring applicants to submit a comprehensive business plan for at least three years, along with risk management, governance, remuneration, business recovery, and compliance frameworks.
- If any functions are outsourced, the applicant must disclose this to the FSCA.
Gagné believes that these requirements will safeguard the interests of consumers and the integrity of the financial system.