South Africa’s Financial Regulator to Evaluate 36 Crypto Firms for Licensing in December

The Financial Sector Conduct Authority (FSCA), South Africa’s financial regulator, is poised to scrutinize applications from 36 cryptocurrency companies seeking operational licenses in the country this month.

According to reports from local media sources, the regulator will initiate the review process after receiving 138 license proposals from firms aspiring to become crypto asset service providers (CASP).

The FSCA will employ various guideline principles, focusing on market participation, consumer protection, and risk management, to identify eligible firms for the licenses.

As disclosed in the report, the FSCA received 93 applications in October and an additional 128 by November 30, the final day of the application period. Among the submissions, 19 were withdrawn due to insufficient experience and inadequate operational policies and procedures.

The government’s attention will center on assessing the services offered by the companies, particularly evaluating the quantity, quality, and whether they provide tools supporting the broader market, such as payment and custodial rails. This approach is expected to enhance safe investments as the number of digital asset users in the country continues to grow.

The assessment will consider the companies’ internal regulation levels, with a focus on Know-Your-Customer (KYC) requirements, conflicts of interest, and disclosure practices. Cyber risk management will also be a key consideration, addressing credit counterparty risk management and complaint handling to prevent issues of consumer dissatisfaction and bolster investor confidence.

This comprehensive evaluation is deemed necessary as the local market experiences growth, as indicated by a recent study released by the regulator. The study revealed an increase in monthly transaction volumes, reaching a record high of ZAR 8 billion.

In light of recent incidents of scams in the digital asset market, which triggered heightened regulatory scrutiny globally, experts and blockchain associations in Africa are advocating for a regulatory framework inspired by the European model, the Markets in Crypto Assets (MiCA). This framework is praised for promoting stakeholder collaboration and cross-country partnerships to establish comprehensive regulations.

The FSCA is slated to adjudicate on 76 license applications, with assessments for 36 crypto firms scheduled for release at the Licensing Executive meeting on December 12. Subsequently, evaluations for 22 firm applications will be addressed on February 13, 2024, during the licensing meeting.