South Africa will require digital asset exchanges to be licensed by the end of the year in a move aimed at protecting investors.
The country’s Financial Services Conduct Authority (FSCA) is leading the crackdown, with Commissioner Unathi Kamlana giving the exchanges until November 30 to secure the license.
The FSCA has received about 20 applications from local and global exchanges since it started the process a few weeks ago, Unathi told Bloomberg in a recent interview. He added that exchanges that fail to meet this requirement will be fined or shut down after the deadline.
FSCA’s goal is to protect investors, the regulator says. South Africa is home to Africa’s largest digital asset scams, some targeting U.S., European, and Asian investors. With no regulatory framework, South African regulators have been playing catch-up, with investors losing billions of dollars.
“There is potentially serious harm to financial customers when using crypto products, and therefore it makes sense for us to introduce the regulatory framework,” Unathi told the outlet.
“Time will tell the effectiveness of our measures, and we will continue to work together with the industry to refine and make changes where and if necessary.”
The commissioner called on the country’s banks to offer services to digital asset clients. As most institutions shun the industry, South African virtual asset service providers (VASPs) have struggled with essential banking services. Recent global contagion in which some of the biggest companies have collapsed has only strengthened banks’ resolve to steer clear of digital assets.
“There’s better transparency if you are in the formal sector,” Unathi believes, adding that partnerships with “an entity as tightly regulated as a bank” will comfort regulators and investors.
One South African digital asset company that has thrived despite the challenges is Centbee. As founder and CEO Lorien Gamaroff tells CoinGeek, the fintech company has focused on compliance and worked with regulators for years. Centbee joined a regulatory sandbox by a coalition of local regulators, and according to Gamaroff, this compliance-first approach has won favor with banking partners.
South Africa is home to some of the continent’s largest VASPs, including VALR and Luno exchanges. Pantera Capital backs the former, while the latter was bought out by the Digital Currency Group (DCG) in 2020.
Speaking to Bloomberg, Luno’s country manager for South Africa, Christo de Wit, claimed the exchange has submitted its application and awaits the FSCA’s feedback.
Regulating before taxing—South Africa takes a different approach
South Africa is taking a different approach from other major African economies, taxing first and regulating later.
Nigeria, Africa’s largest economy, is set to impose a 10% tax on digital assets as part of its 2023 Finance Act. The tax was former President Muhammadu Buhari’s last act in office in May. While some stakeholders believe it legitimizes the industry, most are concerned that it’s too high.
Kenya has joined Nigeria with its 3% tax on digital assets as part of its 2023 Finance Bill. President William Ruto signed the bill into law last month despite 90% of the country opposing it.
The new tax cuts across all forms of tokens, from utility tokens to non-fungible tokens (NFTs), an approach local stakeholders say needs to be revised. It also applies to all transactions without accounting for market downturns and losses, which the Blockchain Association of Kenya says will hinder the industry’s growth.
Watch: Akon on how digital currencies will transform Africa
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