Good news about crypto licences in South Africa

The Financial Sector Conduct Authority (FSCA) has announced that it has approved 248 crypto asset service provider licences out of the 420 applications received since.

This is a major increase since April, when the FSCA had approved 75 crypto asset service provider (CASP) licences and received 374 applications.

According to the FSCA, it has only declined nine applications, with 106 voluntarily withdrawing following engagements with the regulator regarding the appropriateness of their respective business and operating models.

The FSCA said it is still busy considering 56 applications.

Among the reasons for declining CASP licence applications have been a failure to meet the “fit and proper” requirements under the Financial Advisory and Intermediary Services (FAIS) Act.

The FSCA highlighted two specific requirements that applicants failed to meet.

The first was the operational ability requirements, where applicants failed to provide clear and comprehensive business plans and business model descriptions.

These must outline crypto asset activities and key business and operational frameworks to support them.

The second area where many applicants fell short was the competency requirements, where they failed or were unable to demonstrate the requisite knowledge and practical experience pertaining to crypto assets.

“Institutions that have voluntarily withdrawn their applications or that have had their applications declined by the FSCA are free to re-apply in future, on condition that they demonstrate full and proper compliance with the applicable licensing requirements,” the regulator stated.

“In the meantime, they may not undertake any CASP-related activities as defined under the FAIS Act.”

The FSCA warned that any institution or person found to be conducting CASP-related activities without authorisation will be subject to regulatory action.

“This does not apply to institutions or persons that submitted their licence applications by 30 November 2023 and are still awaiting the finalisation of their applications by the FSCA,” it stated.

Additionally, the FSCA has extended the exemption for CASPs and their key individuals to comply with regulatory examination requirements from 11 November 2024 to 30 June 2025.

“Failure to comply with this requirement may lead to regulatory action, including suspension or withdrawal of authorisation,” the FSCA warned.

The FSCA’s update regarding the number of licensed CASPs comes after the Financial Intelligence Centre (FIC) issued Directive 9 in November, which will require crypto platforms in South Africa to identify the parties to a cryptocurrency transaction.

This is part of an effort to get off the Financial Action Task Force (FATF) greylist by complying with its “travel rule” for virtual assets.

The FIC explained that the travel rule related to the information that must be provided alongside cryptocurrency transactions, and the related records that must be kept.

This information, held by the ordering and beneficiary CASPs, must be made available to authorities upon request.

According to the FIC, implementing the travel rule will help ensure that crypto assets flowing through CASPs are not used for money laundering, terrorist financing, or the illegal funding of weapons of mass destruction.

Some transactions of less than R5,000 will be exempt from the more onerous requirements. However, CASPs must still record the sender and beneficiary’s full names, as well as the relevant crypto wallet addresses and account numbers.

More data must be collected for transactions over R5,000. CASPs are also required to validate the data provided for such transactions or if they suspect illegal activity.

If the sender is a person, the CASP must transmit and store their full name, ID or passport number, date of birth (if not an SA resident), and residential address or country of birth if an address is not readily available.

For senders that are businesses or another legal person, the CASP must transmit and store their registered name, entity registration number, and a registered address.

The CASP must also keep record of the sender’s crypto wallet address, and any additional crypto asset account number they might use on their platform.

Directive 9 also includes stipulations for private or self-hosted wallets, which the FIC refers to as “unhosted wallets”.

For these wallets, the FIC directed CASPs to develop, document, maintain and implement effective risk-based policies and procedures to handle them.

These must include how and when additional information on the unhosted wallet is obtained where the CASP determines that there is a higher money laundering, terrorist financing or proliferation financing risk.

The Travel Rule Directive will enter into force on 30 April 2025.