South Africa watchdog urges crypto firms to set up shop

South Africa’s financial regulators want crypto startups operating in the country with foreign head offices to set up local offices to ensure “appropriate oversight and ensure accountability.”

Per a recent study from the Financial Sector Conduct Authority (FSCA), approximately 10% of virtual currency service providers in South Africa have their centers of operation abroad.

The FSCA argues that oversight in South Africa became “insufficient” after cryptocurrencies were declared financial products last year. To offset the issues, the agency wants companies to set up shop.

The South African financial regulatory body describes crypto assets as “a digital representation of value that is not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility.”

“……there is a need to develop bespoke and/or refine further the existing framework to ensure that it is fit for purpose and addresses crypto asset specific risk, without stifling innovation in a significant manner.”

South Africa’s Financial Sector Conduct Authority 

The FSCA’s Crypto Assets Market Study also showcased the distribution of crypto startups’ head offices in the country by city, with Cape Town leading, followed by Johannesburg, Pretoria, and Durban, respectively. 

According to the FSCA, crypto asset financial service providers in South Africa mainly earn their revenue through trading fees. Interestingly, many remuneration structures in these companies align closely with traditional financial revenue models. 

Additionally, the study shows the country’s most popular assets offered by crypto startups are unbacked crypto assets and stablecoins.

Earlier this year, the FSCA ordered crypto financial service providers to seek licenses by the end of November, stating firms without permits will not be allowed to operate in South Africa in 2024. The regulator has reviewed about 128 applications from various crypto service providers, seeking to scrutinize an additional 36 applications in December.

South Africa is trying to clear her name from the loud money laundering cases that landed the country on the International Financial Action Task Force’s list of closely watched countries. FSCA believes providing a regulatory landscape for virtual currencies will help SA avoid getting graylisted by the global financial watchdog.