South African crypto firms will soon have to seek registration with the FSCA or face a hefty fine

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Crypto companies looking to operate in South Africa will need to apply for a license from the country’s Financial Sector Conduct Authority (FSCA) within six months from June 1.

While South African crypto companies have welcomed the new licensing regime, they fear that the wait for those who don’t register in time could sink small businesses or drive out companies that want to enter the market. after the expiry of the deadline.

In November 2020, South Africa’s FSCA proposed that crypto should be treated as financial products and companies offering crypto-related services should apply for a license. Following consultation on the draft law, on October 19, 2022, the FSCA issued the final statement on the authorization requirement.

“This is an extremely positive step for both the crypto industry and for South Africans,” said Nick Taylor, Luno’s public policy manager for Europe, Middle East and South Africa. Africa Luno, like CoinDesk, is part of the Digital Currency Group.

The licensing requirements that will flow from the FSCA classification will strengthen standards, protect consumers and give businesses certainty to invest, innovate and create jobs, Taylor added.

The scheme is put in place to protect consumers and that is really important, Mpumelelo Ndamane, CEO of South Africa-based crypto wallet provider Nuud Money, told CoinDesk.

Instead of enforcing the requirement immediately after reporting, South African regulators set the start date for seeking approval as June 1.

Companies that apply for registration within the designated six months will be allowed to continue operating while regulators make a decision on approval. To continue to operate, companies will need to show that they comply with the country’s standards for financial service providers, including requirements that companies must operate with integrity, exercise due diligence and provide the FSCA with the information it needs. they ask.

However, crypto derivatives service providers are not eligible for the exemption, which allows businesses to continue operating while applications are processed, the statement said.

It’s not yet clear exactly how much crypto firms have to pay to register with the FSCA, but the application fee firms usually pay to the regulator typically ranges from 2,544 South African Rands ($132) to 46,251. ($2,395), depending on business category. .

Crypto companies will likely fall into the first category, which has the lowest fees, and is for businesses that don’t fit into any of the other categories. But if applicants fall into multiple categories, they may need to make multiple applications, said Meiran Shtibel, associate general counsel at crypto custody platform Fireblocks.

The cost of not applying is much heavier.

If crypto companies don’t apply to register, but continue to operate 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, depending on the statement.

Nuud Money is raising a $350,000 seed round and a $510,000 fine would be impossible for it to pay, Ndamane said.

A 10 million South African Rand fine may be a slap on the wrist for other capital-rich financial sectors, but for a new industry like crypto in an emerging market, a fine like this could “sink whole operation,” Shadrack Kubyane said. the founder of South Africa-based blockchain company Coronet told CoinDesk.

The fines are not crypto-specific and are part of existing penalties under the Financial Advisory and Intermediary Services (FAIS) Act, which also applies to other financial companies, Shtibel said, adding that the fact that they are not suitable for the crypto industry may be part of the problem.

However, the benefits of regulation for the financial services industry outweigh the potential cost implications, the FSCA said in the statement.

Some companies felt that the time given to prepare for the diet was not sufficient. The crypto companies had actually requested that the application period be between eight months and up to two years, but the FSCA opted for a six-month period instead, as two years could not be justified, according to the statement.

Businesses should still be able to apply to register after November, but they will not be able to operate until they are approved by the regulator, Shtibel said. In countries like the UK, this approach, whereby companies must register before they can operate in the country, has driven companies out of the market in search of more lenient regimes.

For those who choose to settle closer to the deadline, it can seem almost impossible to prepare in time to be able to complete the paperwork correctly, Ndamane said.

When it comes to applying, lack of time “could just be the barrier” as it might take time for some companies to be able to properly comply, Kubyane said.

Crypto companies seeking a license will need to fill out forms requesting information on business activities and shareholders, as well as the company’s financial strength, according to the statement.

Digital asset companies that applied within the given deadline will only have to cease operations if they are rejected, according to the statement. The FAIS law does not specify whether companies can reapply if they are denied, but they can file for reconsideration under current regulations.

Eventually, financial services related to crypto assets will fall under the Conduct of Financial Institutions Bill (COFI) once it comes into force, instead of the FAIS Act, which is an interim measure, according to the statement. . The COFI bill provides consumer protections.

Non-fungible token providers will not need to register at this stage and will be considered in a future framework, the statement said. Mining nodes and node operators would also not be considered.

Kubyane said he wants regulators to continue working with the industry to develop appropriate measures for all crypto players, not just the big ones.

The FSCA did not respond to a request for comment from CoinDesk before press time.

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