In late 2022, aligning with global trends for increased regulation and oversight, South Africa included crypto assets under its primary financial conduct laws.
This was effected by the Financial Sector Conduct Authority (FSCA) declaring crypto assets as ‘financial products’ under the Financial Advisory and Intermediary Services Act, 2002. Consequently, anyone providing advice or intermediary services in relation to crypto assets needs a license as a financial services provider, colloquially referred to as a Crypto Asset Services Provider (or ‘CASP’) license.
This resulted in a barrage or applications to obtain a CASP license as the relevant provisions of the declaration took effect, with applicants ranging from the large crypto exchanges, advisory services, custodial and wallet providers, payment gateways and index providers. The first licenses were awarded in early 2024, with 75 licenses granted by April 2024 growing to 138 by mid year (out of 383 applications by 30 June 2024).
Notably, the FSCA has taken a thorough consultative approach towards licensing by engaging with many applicants directly, with assessment of the business models of the applicants underpinning their readiness for a license. Certain business models, such as exchanges, digital asset custodial services, online trading platforms and tokenisation services, are also subject to on-site inspections, which include assessment of ‘crypto ready’ business operationalisation. This includes requiring crypto asset specific business risk policies, tailored governance frameworks, best practice security architecture, deep competency of key individuals in crypto asset risk management, and targeted AML/CTF abilities. Many applications are withdrawn in the early stages of these assessments, largely in the face of the depth and rigour of assessment by the FSCA.
This approach by the regulator has arguably brought significant legitimacy to the crypto industry and those receiving CASP licenses. Since the awarding of the first licenses, many traditional financial institutions such as banks and asset managers, some having sat on the fence of the industry for years, have crowded the rooms of crypto conferences and events and grown their teams and internal competencies to take advantage of the shift in the market.
This is not to say that South Africa’s grey areas on regulation are now all clear. The FSCA declaration sits within the country’s financial conduct regime, but issuers of tokens are not yet specifically regulated as such under the countries securities and financial markets laws, such as the Financial Markets Act, 2012, with the FSCA hinting at future amendments to address this gap. The FSCA has also published a three year regulation plan through to 2027, with an overhaul of the entire regulatory regime expected under its Conduct of Financial Institutions (COFI) Bill, a long awaited piece of legislation first published in 2018.
In the meantime, recent developments have led to commendable stability and increased regulatory certainty. These advancements enable legitimate crypto businesses to take bolder actions and explore long-term growth opportunities.