South Africa’s Regulatory Pressure on Crypto Exchanges
Crypto service providers in South Africa are facing increased scrutiny under the Financial Sector Conduct Authority’s (FSCA) “Crypto Assets Markets Study”, which revealed that 60% of crypto traded assets are “unbacked assets.” The FSCA is examining 128 applications from providers and plans to review 36 in their upcoming December meeting, with a focus on customer onboarding, data protection, and risk management.
Foreign Crypto Firms Face Enforcement
The FSCA is warning unlicensed providers to comply or face potential penalties or closure after the deadline in 2023 to regulate foreign-based Crypto Asset Financial Service Providers (FSPs). The FSCA found that around 10% of these entities operate in South Africa but have headquarters abroad, and has issued a mandatory order for them to establish a local office presence to bolster oversight and accountability.
Dealing With Regulatory Gaps and Transaction Volumes
The FSCA’s study identified gaps in the regulatory framework after the classification of crypto assets as financial products in October 2022, and the existing regulations lack specificity tailored to crypto services, necessitating a need for enhanced, innovation-friendly regulatory structures. South Africa’s technology hub status is reflected in Cape Town hosting most Crypto Asset FSP headquarters, followed by Johannesburg and Pretoria. These firms registered over ZAR 8 billion in transactions in November 2022, predominantly targeting retail customers through crypto exchanges.
Do They Need Change in Revenue Model?
Most Crypto Asset FSPs in South Africa earned the majority of their money from trading fees, administrative, and consulting fees. Many firms make money from regulated and unlicensed financial services, and focus on unbacked crypto assets like Bitcoin and Ethereum.
Increasing Crypto Regulations Worldwide
Around the globe, countries such as the European Union, Hong Kong, India, and Singapore are intensifying crypto regulations. South Africa’s stringent actions may inspire other nations facing similar challenges.
Hot Take
The increasing regulatory pressure on crypto exchanges in South Africa is a reflection of a global trend toward stricter oversight and accountability in the cryptocurrency market, with other countries expected to follow suit in the near future.
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