South African crypto exchanges must be licensed by year-end, says financial regulator.

The Financial Sector Conduct Authority (FSCA) of South Africa has mandated that all cryptocurrency exchanges register and obtain operational licenses by the end of 2023.

Failure to comply with this guideline and continuing to operate without a license may result in the closure of firms or the imposition of fines.

The FSCA received approximately 20 applications after two weeks of opening license registrations.

The FSCA Introduces New Crypto Exchange Licensing Guidelines to Protect Customers

Kamlana, during an interview in Pretoria, stated that the use of cryptocurrency products poses potential serious harm to financial customers. Therefore, it is logical for us to introduce a regulatory framework.

Time will tell the effectiveness of our measures, and we will continue to work with the industry to refine and make changes where and if necessary, he added.

South Africa has become the first African country to require licenses for cryptocurrency exchanges. Many of Africa’s top trading platforms originated from South Africa, including Luno, a subsidiary of Digital Currency Group, and VALR, backed by Pantera.

Other global cryptocurrency exchanges like Binance, which have branches in South Africa, will now need a license.

Christo de Wit, the manager of Luno’s South African unit, stated that the company has submitted its license application and is awaiting feedback from the FSCA.

Stringent Scrutiny on Crypto Exchanges

Policymakers and regulators worldwide have taken steps to tighten their control over the cryptocurrency industry.

The need for strict rules and comprehensive scrutiny of cryptocurrency exchanges has increased following the FTX-engineered cryptocurrency market turmoil.

Several global regulators have introduced regulations to govern the cryptocurrency market. For example, in May, EU lawmakers adopted the Markets in Crypto Assets (MiCA) regime, the region’s first comprehensive rules dedicated to the cryptocurrency industry.

Last month, Hong Kong also implemented new guidelines for cryptocurrency exchange licensing.

South African Regulators Seek More Transparency in Crypto to Eliminate Bad Actors

The prevalence of scams in South Africa’s cryptocurrency industry has prompted the regulator to introduce measures to protect investors.

South Africa has been the location of many of the world’s largest cryptocurrency scams, resulting in the loss of billions of dollars in investor funds.

One of these incidents is the Africrypt case, where 70,000 Bitcoins were lost in 2021 from the platform owned by the Cajee brothers.

The Africrypt incident is one of the largest cryptocurrency heists in the world. Another case is the Mirror Trading International Proprietary, a fraudulent multilevel marketing scheme that caused users to lose billions of dollars in Bitcoin.

Following these incidents, the FSCA became more involved in cryptocurrency and fintech regulations. The regulator collaborated with an “inter-governmental fintech working group” that includes South Africa’s top financial sector regulators and policymakers.

These include the National Treasury and the South African Reserve Bank.

Meanwhile, South African banks do not provide services to cryptocurrency platforms due to the associated risks.

However, the central bank has urged them to reconsider their stance in order to allow for greater transparency in the cryptocurrency sector.

Kamlana stated that there is better transparency if you are in the formal sector controlled by a tightly regulated entity such as a bank.

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