Financial Sector Conduct Authority (FSCA) of South Africa Probes 30 Entities Over Crypto Service Irregularities

The Financial Sector Conduct Authority (FSCA) of South Africa is currently conducting investigations into thirty cases where individuals or businesses have been providing cryptocurrency services without possessing the necessary legal permissions. This move is in line with the FSCA’s previous statements, which cautioned that entities operating without a license would be subject to scrutiny and potential penalties.

In a significant regulatory shift, the FSCA, in October 2022, classified crypto assets as financial products. Subsequently, the regulator opened a window for the submission of applications for crypto asset service provider (CASP) licenses, which ran from June 2023 to November 2023.

This regulatory development was preceded by concerted efforts from South African authorities, including the FSCA, to bring clarity to the cryptocurrency landscape. The establishment of the Crypto Assets Regulatory Working Group and the publication of a position paper outlining recommendations for cryptocurrency regulation were part of these efforts. Additionally, the FSCA provided specific guidelines for banks that service clients involved in cryptocurrency transactions.

The FSCA has acknowledged the receipt of numerous applications for CASP licenses. However, not all applications have been successful; some were rejected due to non-compliance with regulatory standards, while others were voluntarily withdrawn by the applicants.

In a recent update, the FSCA disclosed that it had processed 383 applications for CASP licenses. Out of these, five applications did not meet the regulatory criteria and were therefore declined. This underscores the FSCA’s commitment to enforcing compliance and ensuring that crypto asset service providers operate within the legal framework established for the burgeoning cryptocurrency market in South Africa.

As of April 2024, the Financial Sector Conduct Authority (FSCA) of South Africa has officially granted approval to 75 institutions, including prominent players VALR and Luno, to operate as crypto asset service providers (CASPs). The regulatory body has since continued its efforts to regulate the crypto industry, approving an additional 63 CASP license applications, which has increased the total number of authorized entities to 138.

In its commitment to uphold the integrity of the financial services sector, the FSCA has formed a specialized investigation unit. This team is dedicated to identifying and taking action against entities that are providing crypto-related financial services without proper authorization, including those that persist in operating despite having their license applications rejected.

The FSCA intends to make the findings of its investigations public, aiming to raise awareness and caution the public about the risks associated with engaging with unregistered crypto businesses. The regulator has also indicated that a significant number of license applications are still undergoing thorough review.

The FSCA has clarified that while it holds the authority to grant licenses and oversee the operations of CASPs, this authority is confined to the oversight of financial services pertaining to crypto assets as outlined in the Financial Advisory and Intermediary Services (FAIS) Act. It is important to note that this regulatory oversight does not equate to an endorsement of crypto assets as legal tender within the country.

This rigorous approach to regulating unlicensed crypto service providers is part of a broader strategy to safeguard consumers and address the concerns raised by the Financial Action Task Force (FATF). South Africa is among the nations on the FATF’s grey list, and the country is actively working to align with the global watchdog’s recommendations to combat money laundering and terrorism financing within the crypto space.

Furthermore, the Financial Intelligence Centre (FIC) of South Africa has taken proactive measures by issuing a draft directive aimed at enforcing compliance among institutions offering crypto asset services with the recommendations set forth by the Financial Action Task Force (FATF).

The draft directive focuses on the implementation of the FATF’s “Travel Rule,” which requires crypto platforms operating in South Africa to collect and share information about the parties involved in cryptocurrency transactions. This measure is part of a broader strategy to enhance transparency and combat illicit financial activities, such as money laundering and terrorism financing, within the crypto industry.

The FIC’s initiative has garnered attention and prompted feedback from 17 commentators who have provided their insights and perspectives on the proposed directive. The collective input is being considered as part of the process to refine and finalize the regulations.

The efforts to introduce and enforce such directives are integral to South Africa’s commitment to align with international standards and address the FATF’s concerns. By implementing these regulatory measures, South Africa aims to be removed from the FATF’s grey list by the year 2025, thereby reinforcing the country’s reputation as a secure and regulated environment for financial and crypto asset services.