South Africa introduces a license requirement for exchanges to operate legally
South Africa is one of the most emerging areas of the continent, where technological advancements and digital solutions are welcomed with open arms by the government. One of its latest approaches is slowly adopting cryptocurrency and blockchain as a way to attract more interest from investors.
Given that Africans already use digital currencies, such as Bitcoin, Ethereum and Tether, for regular transactions, the initiative is welcomed with open arms considering that only a small part of the population has a bank account. Relying on cryptocurrencies would help citizens seek financial freedom and receive donations from all over the world, improving their life quality and opportunities for the future.
Therefore, after a considerable ban on cryptocurrencies, South Africa comes with improvements and regulations for these digital assets to be legally and easily used by investors and citizens.
South Africa wants exchanges to provide licenses until the end of the year
The Financial Sector Conduct Authority (FSCA) is the official financial regulator in South Africa that agreed to treat digital assets like financial products in 2020. Following this measure, the country has now imposed a license for exchanges that want to operate in South Africa that needs to be provided by the end of 2023.
This measure is set to mitigate the risks associated with transactions so that the FSCA is taking small steps to ensure the safety and security of customers properly. Both native to and operating in South Africa are targeted, such as Luno and VALR. If exchange companies are not able to provide this documentation by the 30th of November, the country will impose enforcement measures such as fines and business closure.
FSCA Commissioner says that results will come over time
FSCA Commissioner, Unathi Kamlana, said in an interview with Bloomberg that the results of this regulation will be seen in time. During this trial, the country will continue its efforts to protect customers while slowly allowing cryptocurrencies to be used freely and completely. The institution will also deploy programs for financial education and public awareness of cryptocurrency.
The level of implication that South Africa has is the result of past issues with considerable crypto scams. This is why the FSCA works closely with the National Treasury and the South African Reserve Bank to regulate the country's digital economy while offering a more secure environment for citizens.
But this isn’t the first regulatory effort South Africa enforces
At least since 2020, when the demand for cryptocurrencies increased, South Africa opened its arms carefully to the use of these digital assets, trying to provide a secure ecosystem without going head-first into the industry.
Cryptocurrency has been allowed in South Africa for some time but is not recognized as a legal tender. At the same time, crypto is already taxable since the country identifies it as an intangible asset for tax purposes. Therefore, anyone buying and selling crypto must declare gains and losses, with the tax rate depending on the income bracket.
Regarding other exchange regulations for crypto, South Africa has proposed actions since 2019, when the FSCA became responsible for enforcing compliance and also imposed penalties. Fast forward to 2022, the Financial Centre Act (FICA) sees crypto providers as accountable institutions, which means that dealing with crypto anonymously is impossible. This regulation was introduced to mitigate money laundering and terrorist financing.
Not only South Africa supports cryptocurrencies
The African crypto market is rapidly emerging, so users from all over the continent are approaching crypto as a way to expand their financial opportunities. Besides South Africa, Kenya and Nigeria are the countries with the highest number of crypto users who engage in commercial payments. The Central African Republic also made Bitcoin legal tender at some point but left the operation since there weren’t enough benefits to defend the adoption.
African citizens started using cryptocurrency against economic stagnation in the continent, composed of crises and political instability. Therefore, countries like Kenya and Nigeria have weak currencies that have been considerably affected by inflation.
Cryptocurrencies are quite easy to approach since they can address financial exclusion and problems of weak domestic currencies. That’s because anyone with access to a mobile service and internet connection can make payments and invest in crypto, which is easier than having a bank account that is anyway almost impossible to maintain due to high transfer fees. The blockchain-based technology facilitates peer-to-peer transactions, which makes cryptocurrencies quick, cheap and easy to use, so the African environment would rather have to use them than regular financial services.
Still, what are the risks the Africans are exposed to?
Unfortunately, using cryptocurrency comes with plenty of risks the government is aware of. First of all, the technology and application methods are complex to understand, which may impose difficulty on African citizens whose educational opportunities are less broad than other regions.
At the same time, the threat to monetary sovereignty. If cryptocurrencies were used more than fiat money in Africa, governments wouldn’t be able to balance the economic situation, at least for the moment.
Still, the biggest challenge of using digital assets for transactions is volatility. This is present everywhere, not only in Africa, but it can pose an increasing number of problems to African citizens since the stability of the country’s financial situation isn’t that strong to face such a challenge. If we take the example of El Salvador, whose Bitcoin adoption as legal tender was a total disaster, we can tell how bad it is for less emerging countries to approach such a method.
These situations hinder the worldwide adoption of cryptocurrencies, but a less developed country shouldn’t be forced to use cryptocurrencies if it’s not prepared to. Therefore, the slow pace that Africa has taken regarding digital assets is the right way to introduce a new and less stable financial solution within a country.
Final considerations
South Africa is taking another step towards crypto acceptance by getting exchanges a license by the end of this year. This approach is set to protect customers and allow the country to collaborate with only genuine businesses.
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