The South African Financial Sector Supervisory Authority (FSCA) has introduced a new licensing regime that requires cryptocurrency companies to be licensed to operate in the country within six months, starting June 1.
The agency said the requirement is intended not only to increase consumer protection, but also to raise industry standards, which will give companies the confidence to innovate and create new jobs.
Financial services related to crypto-assets will be regulated under the financial institutions act (COFI), aimed at protecting consumer interests.
The FSCA noted that non-transferable token (NFT) issuers, miners and node operators are exempt from licensing for now, but the issue will certainly be addressed in the future.
Luno Crypto Exchange’s head of policy for Europe, Middle East and Africa, Nick Taylor, called it an important positive for the industry and local cryptocurrency traders.
However, not everyone is so optimistic.
Local cryptocurrency companies fear that the short timeframe for obtaining licenses and possible penalties for non-compliance could lead to the closure of small digital asset organizations.
Failure to register in a timely manner could result in a fine of 10 million South African rand (about $510,000) or imprisonment for up to 10 years.
Therefore, potential market participants may refuse to work in this jurisdiction at all.
For example, Shadrack Kubyane, co-founder of South African blockchain company Coronet, believes such fines could “sink” the local crypto sector.
Many cryptocurrency companies are also unhappy that little time is given to prepare for compliance.
Even though they asked the regulator to extend the application period to two years, the FSCA deemed it too long, stopping at six months.
Companies fear that they will not be able to prepare the necessary documentation in time.
In order to obtain a license, they must provide comprehensive information about their business activities, shareholders and financial condition.
Recall that last fall, the FSCA amended legislation to equate cryptoassets with financial products.
Earlier this year, the Advertising Standards Board in South Africa (ARB) unveiled new rules for cryptocurrency advertising to protect investors from misleading information.