• The FCSA has begun granting Crypto Asset FSP licenses to businesses in South Africa.
• These businesses will need to abide by the Financial Advisory and Intermediary Services Act or risk losing their license.
• South Africans can check whether an entity is registered on the Financial Sector Conduct Authority’s website.

Despite its numerous failings and scandals, cryptocurrency still captures the attention, and funds, of many people, ourselves included. Tokens such as Bitcoin, Ethereum, and Ripple have all managed to weather the upsets in the sector.

However, while we’re a long way from the days where everybody was launching a cryptocurrency, be it for a scam or legit business, there are still those looking to take advantage of people.

In South Africa, there is legislation which governs cryptocurrency trading governed by the Financial Sector Conduct Authority (FSCA).

In 2022, a study conducted by FSCA found that 10 percent of South Africa’s population owns crypto assets and as such rules were put in place to protect locals. By 30th November 2023 trading platforms, token issuers, digital wallet and anyone providing crypto-asset financial services had to apply or a license.

This license is governed by the Financial Advisory and Intermediary Services Act and those granted it would become crypto-asset FSPs.

Last week, 60 new licenses were issued.

“By regulating Crypto Asset FSPs, the FSCA has shown it understands that South Africans rely on these service providers and invest significant trust and assets in them,” explains Kelle Gagné, Counsel at law firm Allen & Overy.

“Crypto asset providers will now be subject to similar licensing hurdles and ongoing compliance requirements to obtain and keep their licenses, as other financial services providers such as financial advisors and insurance companies. Part of this compliance includes reporting breaches, incidents, and financial weaknesses to allow for intervention,” the legal mind adds.

To obtain this license, applicants must meet several requirements including:

• Provide routine business information and disclose details about their directors, trustees, partners, members, key individuals and representatives.
• Individuals must meet the ‘Fit and Proper requirements for Financial Services Providers’ demonstrating qualities of honesty, integrity, competency and engagement in continuous professional development.
• Applicants and their key individuals and representatives must have no history of legal or professional misconduct and must not be under investigation or proceedings that could result in conviction.
• Competence is assessed based on experience, qualifications, and performance in regulatory exams.
• If not already regulated as a bank or insurer, the applicant must demonstrate financial soundness, with different requirements depending on whether the applicant will hold or receive client assets.
• All applicants must meet working capital and liquidity requirements, with higher thresholds for those holding client assets.
• Operational ability is also vital, requiring applicants to submit a comprehensive business plan for at least three years, along with risk management, governance, remuneration, business recovery, and compliance frameworks.
• If any functions are outsourced, the applicant must disclose this to the FSCA.

“Of course no licensing regime is foolproof, but when entrusting crypto assets to a service provider, South African consumers can now check whether the service provider is licensed by the FSCA and take some comfort that the service provider is not beyond the reach of the law in South Africa,” says Gagné.

Before you part ways with your crypto we highly recommend you check that an entity is registered with FSCA. You can do that by heading here and clicking Financial Services Provider. You can then search using an FSP number, a postal code, a person’s ID number, or the name of the entity.

To be clear this doesn’t mean that there won’t be ne’er-do-wells trying to take advantage of cryptocurrency owners, just that if they do try to pull the wool over your eyes, you have recourse.