Continuing operations without applying for registration in the designated time period could lead to a $510,000 fine or imprisonment, the Government has said.
Cryptocurrency corporations looking to operate in South Africa will must apply for a license from the country’s Financial Sector Conduct Authority (FSCA) in the 6 months starting June 1.
Although while South African cryptocurrency corporations have welcomed the new licensing regime, they worry the fine waiting for those that fail to register in time may sink smaller corporations or drive away corporations that want to enter the market after the deadline has passed.
South Africa ranked 30 on Chainalysis’ worldwide adoption index a year ago, and is behind other African countries like Nigeria and Kenya in terms of cryptocurrency use. On the other hand, regulatory authorities in the country, like those elsewhere, have been attempting to supervise the sector, which hit next to $3 trillion in worldwide market cap in 2021 before crashing spectacularly in 2022.
In November 2020, South Africa’s FSCA proposed cryptocurrency should be treated like financial products, and that corporations offering crypto-related services must apply for a license. Following a consultation on the drafted legislation, on October 19, 2022, the FSCA published the final declaration on the licensing requirement.
“This is an incredibly positive step for both the cryptocurrency industry and South Africans,” stated Nick Taylor, head of public policy at Luno for Europe, Middle East and Africa. Luno, like CoinDesk, is owned by the Digital currency Group.
“The licensing requirements that will flow from the FSCA’s classification will drive up standards, protect consumers, and give enterprises the certainty to invest, innovate and create jobs,” Taylor added.
The regime is being establish to guard consumers and that is really important, Mpumelelo Ndamane, CEO of South Africa-based cryptocurrency wallet provider Nuud Money, informed CoinDesk.
Instead of enforcing the requirement after having the declaration, South African regulatory authorities set the start date for seeking approval on June 1.
Corporations that apply for registration in the designated 6 months will be allowed continuation operating while regulatory authorities cause a decision on approval. To continue operating, corporations will have to show they comply with the country’s norms for financial service providers, including conditions that corporations should operate with integrity, be diligent and provide the FSCA with information they request.
Nonetheless, cryptocurrency derivatives services providers do not qualify for the exemption, which allows corporations to keep operating while applications are being processed, the declaration said.
The expense of not applying
It’s not is still clear exactly how much cryptocurrency corporations have to pay to register with the FSCA but the app charges that corporations usually pay the regulating authority usually range from 2,544 South African rand ($132) to 46,251 ($2,395), depending on the category corporations fall under.
Cryptocurrency corporations will likely fall under category one, which has the lowest fee, and is for corporations that don’t fit into any of the other categories. On the other hand, if applicants fall under numerous categories, they may have to do plenty of applications, Meiran Shtibel, associate general counsel at cryptocurrency custody platform Fireblocks said.
The expense of not applying is much heavier.
If cryptocurrency corporations do not apply to register, but continue operating after the November deadline, they could face a fine of 10 Million South African rand ($510,000), up to 10 years in prison, or both, the declaration said.
Nuud Money is raising a seed round of $350,000, and a $510,000 fine would be unfeasible for it to pay, Ndamane said.
A 10 Million South African rand fine could be a slap on the wrist for other capital-rich financial sectors, but for a new industry like cryptocurrency in an emerging market, a fine like that could “sink the entire operation,” Shadrack Kubyane co- founder of South Africa-based blockchain tech company Coronet informed CoinDesk.
The fines are not specific to cryptocurrency and are a part of the existing penalties under the Financial Advisory and Intermediary Services Act (FAIS), which likewise applies to other financial corporations, Shtibel stated, adding the fact that they’re not tailored to the cryptocurrency sector could be part of the problem.
Nonetheless, the regulations’ benefit to the financial services industry outweighs the capacity cost implications, the FSCA stated in the declaration.
Several corporations felt that the timeframe allocated to prepare for the regime was not enough. Cryptocurrency corporations had essentially requested for the app period to be betwixt eight months to up to two years, but the FSCA settled for a 6 30 days time frame instead because two years could not be justified, the declaration said.
Corporations should still be able to apply to register after November, but they won’t be be able to operate until they have been approved by the regulating authority, Shtibel stated. In countries like the United Kingdom, this approach, where corporations have to register before they can operate in the country, has driven corporations out of the market in search of more lenient regimes.
For those who choose to establish closer to the deadline, it may feel near impossible to get themselves ready in time in order to fill out the paperwork properly, Ndamane said.
In the case of applying, insufficient time ” can potentially just be the barrier,” as it can potentially take some corporations time in order to properly comply, Kubyane said.
Cryptocurrency corporations wishing to get licensed will must fill out forms asking for information on business activities and shareholders, likewise as the financial soundness of the business, the declaration said.
Digital investment corporations that have applied within the allocated time will only have to cease operating if they get rejected, the declaration stated. The FAIS act is not clear about whether or not corporations can apply once more if they are rejected, but they can file an app for reconsideration under existing regulations.
Sooner or thereafter, cryptocurrency asset-related financial services will fall under the Conduct of Financial Institutions (COFI) bill once this comes into law, instead of the FAIS Act, which is an interim measure, the declaration stated. The COFI bill sets out protections for consumers.
Non-fungible crypto token providers won’t be must register at this point and will be considered in a “future framework,” the declaration stated. Mining nodes and node operators would likewise not be considered.
Kubyane stated he wants regulatory authorities continuation to work with the industry to develop appropriate measures for all cryptocurrency players, not just big ones.
The FSCA did not respond to a CoinDesk request for comment by press time.
Sandali Handagama and Nikhilesh De.