June 7, 2023

South African regulator obliges crypto companies to obtain a license within six months

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South African regulator obliges crypto companies to obtain a license within six months

Financial Sector Supervisory Authority of South Africa(FSCA) has introduced a new licensing regime that requires crypto companies to obtain a license to operate in the country within six months starting June 1st.

The agency stated that this requirement is directednot only to strengthen consumer protection, but also to raise industry standards, which will give companies the confidence to innovate and create new jobs. Financial services related to crypto assets will be regulated under the Financial Institutions Act (COFI) to protect consumer interests. The FSCA noted that non-fungible token (NFT) issuers, miners and node operators are currently exempt from obtaining licenses, but this issue will definitely be considered in the future.

Head of Policy at Luno Crypto ExchangeEurope, the Middle East and Africa, Nick Taylor called this an important positive moment for the industry and local cryptocurrency traders. However, not everyone is so optimistic.

Local crypto companies fear that a smallthe deadline for obtaining licenses and possible penalties for non-compliance may lead to the closure of small organizations working with digital assets. Failure to register by the deadline can result in a fine of 10 million South African rand (about $510,000) or imprisonment for up to 10 years. Therefore, potential market participants may even refuse to work in this jurisdiction. For example, Shadrack Kubyane, co-founder of the South African blockchain company Coronet, believes that such fines can “sink” the local crypto sector.

Many cryptocurrency companies are also unhappy,that little time is given to prepare for compliance. Despite the fact that they asked the regulator to extend the application period to two years, the FSCA considered this period too long, settling on six months. Companies are afraid that they will not have time to prepare the necessary documentation in time. To obtain a license, they must provide comprehensive information about their commercial activities, shareholders and financial condition.

Recall that last fall, FSCA amendedin legislation, according to which crypto assets are equated to financial products. At the beginning of the year, the South African Advertising Standards Authority (ARB) introduced new rules for advertising cryptocurrencies to protect investors from misleading information.