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South Africa has announced that digital asset exchanges will be required to obtain licenses by the end of the year, with the aim of protecting investors.
The Financial Services Conduct Authority (FSCA) of South Africa is leading this regulatory effort, and Commissioner Unathi Kamlana has set a deadline of November 30 for exchanges to secure the necessary licenses.
Since the process began a few weeks ago, the FSCA has received approximately 20 applications from local and global exchanges, according to Unathi in a recent interview with Bloomberg. Exchanges that fail to obtain the required license by the deadline will face fines or potential closure.
The FSCA’s objective is to safeguard investors, as South Africa has been a breeding ground for significant digital asset scams that have targeted investors from the United States, Europe, and Asia. Without a regulatory framework in place, South African authorities have been working to catch up, as investors have suffered significant financial losses.
“We believe that there is potentially serious harm to financial customers when using crypto products, and therefore it makes sense for us to introduce the regulatory framework,” Unathi explained to the outlet.
“The effectiveness of our measures will be determined over time, and we will continue to collaborate with the industry to refine and make any necessary changes.”
The commissioner also called upon South African banks to offer services to clients involved in digital assets. Most banks have been hesitant to engage with the industry, and as a result, virtual asset service providers (VASPs) in South Africa have faced challenges in accessing essential banking services. The recent collapse of major companies globally has only reinforced banks’ reluctance to be associated with digital assets.
Unathi believes that operating within the formal sector provides better transparency, and partnerships with banks, which are tightly regulated entities, will provide comfort to both regulators and investors.
Despite the challenges, one South African digital asset company that has thrived is Centbee. According to Centbee’s founder and CEO Lorien Gamaroff, the company has focused on compliance and has been working with regulators for years. Centbee participated in a regulatory sandbox established by a coalition of local regulators, and Gamaroff believes that their compliance-first approach has been well received by banking partners.
South Africa is home to some of the largest VASPs on the continent, including the VALR and Luno exchanges. VALR is backed by Pantera Capital, while Luno was acquired by the Digital Currency Group (DCG) in 2020. Christo de Wit, Luno’s country manager for South Africa, stated in an interview with Bloomberg that the exchange has submitted its application and is awaiting feedback from the FSCA.
South Africa is taking a different approach compared to other major African economies by prioritizing regulation before taxation.
Nigeria, the largest economy in Africa, is set to impose a 10% tax on digital assets under its 2023 Finance Act. This tax was one of the final acts of former President Muhammadu Buhari before leaving office in May. While some stakeholders view it as a legitimization of the industry, there are concerns that the tax rate is too high.
Kenya has also followed suit with a 3% tax on digital assets as part of its 2023 Finance Bill. President William Ruto signed the bill into law last month, despite opposition from 90% of the country. Local stakeholders argue that the tax, which applies to all forms of tokens, including utility tokens and non-fungible tokens (NFTs), needs to be revised. They also point out that it fails to account for market downturns and losses, which could hinder the growth of the industry, according to the Blockchain Association of Kenya.
As South Africa moves forward with licensing requirements for digital asset exchanges, the country is striving to create a regulatory framework that ensures investor protection and fosters a secure environment for digital asset transactions.
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