The Financial Sector Conduct Authority (FSCA) in South Africa is intensifying its crackdown on unlawful crypto financial services, currently investigating thirty cases involving individuals or entities offering such services without proper authorization.
This action follows the FSCA’s declaration on October 19, 2022, which classified crypto assets as a financial product. Consequently, the regulator announced it would begin accepting applications for crypto asset service provider (CASP) licenses from June 1, 2023. Existing operators were given a grace period to continue their operations provided they submitted their license applications by November 30, 2023, and adhered to the Financial Advisory and Intermediary Services (FAIS) General Code.
A Surge in License Applications
The FSCA has received a significant number of CASP license applications, as detailed in their recent regulatory actions report. The applications include both new submissions and modifications to existing licenses. While several applications have been approved, others have been declined or voluntarily withdrawn by the applicants.
The FSCA’s enforcement division has established a dedicated investigation team to address cases of unlawful crypto financial services. This includes entities that either failed to apply for a license or had their applications declined but continued operations nonetheless. The regulator emphasized its commitment to protecting the public and ensuring fairness in the industry, warning that it will take decisive action against unlawful CASPs.
Grounds for License Rejections
As of the latest update, the FSCA has received 383 CASP license applications, with five applications declined. The key reasons for these rejections include:
- Operational Ability Requirements: Applicants failed to provide clear and comprehensive business plans and business model descriptions outlining crypto asset activities and the frameworks to support such activities.
- Competency Requirements: Applicants lacked the requisite knowledge and practical experience pertaining to crypto assets.
The FSCA has encouraged entities that have withdrawn their applications or had their applications declined to re-apply once they can demonstrate full compliance with the applicable licensing requirements. However, until they receive their license, these entities are prohibited from offering crypto asset services in South Africa. Non-compliance will result in regulatory action.
Approved Licenses and Ongoing Applications
Since April 2024, the FSCA has approved an additional 63 CASP license applications, bringing the total number of licensed entities to 138. Meanwhile, 80 applications have been voluntarily withdrawn following discussions with the FSCA regarding the suitability of their business and operating models.
The FSCA has also published a complete list of CASP licensees as of June 2024 and issued a reminder that its licensing authority is limited to the authorization and supervision of CASPs rendering financial services related to crypto assets as defined under the FAIS Act. This includes advisory, intermediary, and investment management services. Importantly, the South African Reserve Bank does not recognize crypto assets as a legal form of tender, contrary to some media reports.
Ensuring Compliance and Protecting Investors
The FSCA’s rigorous licensing process and enforcement measures are aimed at ensuring that only compliant and competent entities can operate within South Africa’s crypto financial services sector. By doing so, the regulator seeks to safeguard investors and maintain the integrity of the financial system.
The crackdown and ongoing scrutiny signal a strong message to the crypto industry: compliance with regulatory standards is non-negotiable. The FSCA’s actions highlight the importance of adhering to legal and operational requirements to foster a secure and fair financial environment for all participants.
