Crypto license in South Africa

South Africa has become the first country on the African continent to mandate the issuance of crypto licenses for digital asset exchanges, marking a significant step towards the adoption of blockchain technology.

Thus, as of March 12, 2024, the South African Financial Sector Conduct Authority (FSCA) has approved 59 applications for crypto licenses. Another 262 applications are being processed. Cryptocurrency companies have submitted applications by November 30, 2023 and will be regulated by the Financial Advisory and Intermediary Services (FAIS) Act.

Requirements for obtaining a cryptocurrency license in South Africa

The Financial Sector Conduct Authority (FSCA) in its declaration declared crypto assets as financial products from October 19, 2022.

This means that any company providing financial services related to crypto assets will be required to obtain an appropriate financial service provider (FSP) license and apply to the FSCA for an FSP license between 1 June 2023 and 30 November 2023.

The declaration defines a “crypto asset” as a “digital representation of value” that:

• Is not issued by a central bank but can be traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and “other forms of utility”;
• Applies cryptographic techniques; and
• Uses distributed ledger technology.

Companies that are not a licensed FSP must submit a complete application for an FSP license. Companies already operating as an FSP must apply to include crypto assets in their existing license.

Crypto asset providers are required to immediately comply with:

• Chapter 2 Determination of Fit and Proper Requirements for FSP and (Board Notice No. 194 of 2017)
• Section 2 of the General Code of Conduct for Authorized FSPs and Representatives (Board Notice No. 80 of 2003)

This requires crypto asset providers to immediately act honestly, with integrity and in good standing, and to provide financial services honestly, fairly, with due skill, care and diligence, and in the best interests of customers and the integrity of the financial services industry.

How To Get a crypto license in South Africa

The FSCA has updated FSP license application forms to provide for a sub-category of crypto asset products. Changes have been made to the following FSP license forms: FSP 2, FSP 4C, FSP 4D and FSP 5 forms.

Thus, to obtain an FSP crypto license in South Africa you must:

    1. Register a company. This step includes:

• Choice of legal form (Private Company (Pty Ltd), Personal Liability Companies (Inc), Partnership);
• Reserving a company name with the Companies and Intellectual Property Commission (CIPC) of South Africa;
• Preparation and submission of relevant documents for company registration. This will require a Memorandum of Incorporation (MOI), certified copies of personal details of applicants, directors, shareholders, as well as notarized copies of passports of individual directors and shareholders. You can submit the relevant documents through the CIPC online registration portal.

    2. Complete the statutory forms for obtaining an FSP license and submit to the regulatory authority.

    3. Obtain permission to conduct activities with crypto assets from the FSCA.

Also, for key employees and representatives of crypto companies, a temporary exemption from regulatory exams is provided for 18 months from May 11, 2023, and the period for taking advanced training courses has also been extended.

Anyone who, as part of their business, provides financial services in relation to crypto assets without a license will be in breach of section 7(1) of the FAIS Act and a person found guilty of such an offense will, upon conviction, be subject to a fine of not more than R10 million and/or imprisonment for up to 10 years.

The process of completing and applying for a crypto license in South Africa, as well as developing statutory AML/CFT policies, requires meticulous legal work. SBSB Fintech Lawyers professionals will be happy to help you accompany the crypto licensing process and achieve the desired result.

Application of the general exemption

In accordance with the FAIS Act, the following organizations do not need to obtain a crypto license in South Africa:

1. Crypto asset miners, which the notice defines as “a juristic or natural person that, alone or in a mining pool, uses computers or specialised hardware to participate in blockchain processing by verifying and adding new transactions to the blockchain”.
2. Node operators, who are juristic or natural persons who run “software that keeps a complete or pruned version of the blockchain and broadcasts transactions across the network”.
3. People who render financial services in relation to non-fungible tokens (NFT), which are “crypto assets recorded on a blockchain with unique identification that distinguishes them from each other and can be associated with real-world objects”.

Conclusion

As South Africa moves forward in regulating its crypto environment, the imminent licensing of cryptocurrency service providers marks a turning point in the country’s adoption of blockchain technology. The FSCA’s proactive measures position South Africa as a leader in creating a secure and compliant environment for cryptocurrency transactions. While the global crypto community watches these developments unfold, South Africa’s path to cryptocurrency regulation is setting a worthy example for Africa and beyond.

Why should you contact SBSB Fintech Lawyers to obtain a crypto license in South Africa?

Planning to start a business in Africa? Contact our experts! We will prepare for you all necessary documents and application for regulatory authorities, as well as help you to choose a suitable legal form of company.

SBSB Fintech Lawyers offer a full range of legal support for your turnkey project at all its stages. Contact us in a convenient way, and we will provide qualified support and advice on all issues!