This article covers developments in South Africa, where there’s an opportunity to observe the impact of the country’s licensing regime introduced in 2022. Two years on, the regulation is proving a catalyst for institutional interest and has made the country an entry point for digital assets on the African continent.
From 2017’s Boom to 2025’s Crypto Regulation: A Timeline of South Africa’s Evolution
As cryptocurrencies grew in popularity during the bull market of 2017, the South African authorities increasingly warned about the need for regulation. In 2020, the country’s main financial regulator, the Financial Sector Conduct Authority (FSCA), launched a public consultation on a draft document proposing the classification of crypto assets as financial products.
Following the consultation, in October 2022, the FSCA declared crypto assets as financial products under the Financial Intermediary and Advisory Services (FIAS) Act 2002, stating that they needed to be regulated in order to protect customers.
In November 2022, the government passed an amendment to the Financial Intelligence Centre Act (FICA) 2001 to expand its scope of “accountable institutions” to Crypto Asset Service Providers (CASPs). Effectively this brings CASPs under the scope of FICA’s licensing requirements, making them a licensed Financial Service Provider (FSP) under the Act.
CASP services requiring an FSP license include:
- exchanging a crypto asset for a fiat currency or vice versa;
- exchanging one form of crypto asset for another;
- conducting a transaction that transfers a crypto asset from one crypto asset address or account to another;
- safekeeping or administration of a crypto asset, or of an instrument enabling control over a crypto asset; and
- participation in and provision of financial services related to an issuer’s offer or sale of a crypto asset.
The FSCA also announced it was developing a regulatory and licensing framework specifically applicable to CASPs. Entities that had already been providing in-scope services were granted a transitional period that ran until November 2023.
Navigating Compliance: What CASPs Need to Know About South African Crypto Laws
The South African approach differs from jurisdictions such as the EU or Turkey, in that there is no single regulation that govern digital assets. Instead, the government has opted to extend existing financial frameworks, meaning that there are several requirements for compliance emerging from various laws and guidelines.
All CASPs in South Africa must be licensed, even if they are already a licensed FSP under FICA. This means that any established licensed bank or broker wanting to branch out into crypto-asset services will need to apply to FSCA to extend their license.
New CASPs that do not already operate as licensed FSPs will need to submit a full license application via the FSCA.
To be eligible for a license, CASPs must demonstrate compliance with requirements laid out in the Determination of Fit and Proper Requirements for FSPs (Board Notice 194 of 2017) and Section 2 of the General Code of Conduct for Authorised FSPs and Representatives (Board Notice 80 of 2003). These rules require crypto asset providers to act with honesty, integrity and be in good standing, and to render financial services honestly, fairly, with due skill, care, and diligence, and in the interests of clients and the integrity of the financial services industry.
It can take up to six months to become licensed, although potentially longer if there is a backlog.
Notably, NFTs and stablecoins are both excluded from the definitions of crypto-assets laid down in the updated FAIS Act. Therefore, both are currently considered unregulated in South Africa.
Opportunities for Banks in South Africa’s Post-Regulation Crypto Market
On 22nd April 2024, the FSCA confirmed it had approved a total of 75 institutions to be licensed as CASPs. According to information previously provided to Reuters, there were also over 200 applications pending, indicating a huge swell of intent to launch CASP services.
Even despite the lack of regulation, stablecoins remain an area of significant interest across the spectrum in South Africa. At the government level, the South African Reserve Bank (SARB) previously announced it was working on a project to develop a wholesale CBDC following the publication of a paper on the financial stability considerations of stablecoins in 2023. However, since the country’s election in May 2024, there have been no further developments on this initiative.
Even so, retail interest in stablecoins is growing rapidly. In its State of Adoption report, Chainalyis notes that over the last year or so, stablecoin trading has now outpaced cryptocurrencies such as BTC on South African exchanges. One key reason for this is likely to be the opportunity to limit the effects of local currency fluctuations.
However, the trend has led to rising interest from financial services institutions. One example is Absa, a leading bank that has developed a gold-backed stablecoin to support demand for cross-border currency flows. The level of engagement in stablecoins means that any positive regulatory developments are likely to act as a trigger point for market entry by more banks and institutions.
More broadly, Chainalysis researchers also found that institutional and professional-sized transactions ($1m-$10m) have become the largest contributors to the total indexed value received by South African entities, especially from late 2023 through Q1 2024. This indicates that the post-regulation environment in South Africa is indeed proving to be favorable for institutions.
Wyden Infinity: The End-to-End Digital Asset Trading Solution for South Africa’s Compliant Crypto Future
Wyden Infinity covers the entire end-to-end trade lifecycle of digital assets across all pre-trade, trade, and post-trade use cases. It enables sell-side firms to build and maintain retail and institutional client offerings as well as internal proprietary trading needs via a single platform, making Wyden Infinity the ideal choice for banks and brokers when building and scaling their fully compliant digital asset businesses.
One key advantage of the Wyden platform is that it offers true best execution through market-wide connectivity to over 55 trading venues and a smart order routing system that carries out price comparisons and order splitting to achieve the optimal execution terms. Furthermore, our system supports FX triangulation, allowing banks to offer a seamless local experience for their retail or institutional clients to access products denominated in ZAR while ensuring access to more attractive liquid markets offshore.
Transparency is built into the system via real-time pre- and post-trade data, and Wyden’s standalone accounting system offers a fully auditable transaction trail.
Integration with custody partners, such as Copper, Metaco (now Ripple Custody), and Fireblocks, also means Wyden maintains an auditable record of transaction flows between custody and trading with automated liquidity management solutions that ensure an uninterrupted trading experience. Wyden’s settlement module flexibly supports a bank or brokers’ preferred settlement model and reduces operational risk through automation of pre-trade funding, settlement commitments and transferring of assets between trading wallets and omnibus or segregated client custody accounts. Core banking integrations ensure smooth reconciliation and support the assimilation of a new digital asset offering into established workflows. These integrations leave banks open to consider a wide array of use cases across the digital asset life cycle.
Contact us today for an initial discussion about implementing a compliant digital asset offering in your organization.
Please note that the above article does not constitute legal advice.