South Africa’s financial regulator has asked exchanges operating in the country to obtain a license before the end of 2023.

Crypto firms who fail to adhere to the directive before the deadline could be fined or have their businesses closed down by authorities.

New Licensing Regime in South Africa

The Financial Sector Conduct Authority (FSCA) has required crypto exchanges in South Africa to secure a license before the November 30 deadline.

According to FSCA Commissioner Unathi Kamlana, about 20 firms have applied since the watchdog first opened the licensing process a few weeks ago, while expecting more companies to file an application before the deadline.

In October 2022, the FSCA declared crypto a financial product after a declaration proposal in November 2022 and a consultation on the draft regulation. Also, the publication of the final declaration mentioned that crypto exchanges in South Africa must be licensed by the end of 2023. Defaulters could be fined 10 million rands ($536,387), face 10 years in prison, or suffer both consequences.

While the FSCA proposed a four-month window for crypto businesses to submit their license applications, some commentators believed the time frame was insufficient, with some comments suggesting six months and another two years. The financial watchdog, in response, extended the license application period to six months in the final declaration, stating that it was not necessary and unjustified.

South Africa’s High-Profile Crypto Scams

The South African regulator, meanwhile, maintains that the crypto asset industry is risky, with Kamlana stating that “it is an area where you can lose quite a bit of money, so you must think twice before exposing yourself to it.”

The African country, which has seen an increased interest in the asset class, has also experienced some high-profile cryptocurrency scams causing investors losses worth billions of dollars. In June 2021, the founders of South African crypto investment platform Africrypt, the Cajee brothers, allegedly made away with nearly 70,000 BTC (worth over $2 billion).

Also, Johannes Steynberg, CEO of the international multi-level marketing scheme Mirror Trading International (MTI), reportedly disappeared with 29,000 bitcoin in customer funds. Following his arrest in Brazil, a US court recently ordered Steynberg to pay a penalty worth $3.4 billion.

Kamlana further said the FSCA introduced consumer protection measures which include awareness about crypto products and financial education.

According to the FSCA Commissioner:

“There is potentially serious harm to financial customers when using crypto products, and therefore it makes sense for us to introduce the regulatory framework. 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.”