Crypto companies with foreign headquarters may soon be required to have a local office by South Africa’s Financial Sector Conduct Authority (FCSA).
According to FCSA, a small proportion of Crypto Asset FSPs operating in South Africa have their head offices in foreign countries.
“For the 10% of entities that have an off-shore head-office, consideration will need to be given to the requirements relating to having a local branch. This is important because it, amongst other things, creates a physical presence that would allow the FSCA to have appropriate oversight over and ensure accountability of the institution conducting activities in South Africa,” the regulator said in a recent market study.
The Crypto Assets Market Study is intended to gain more information about the industry to assist in the formulation of more regulation with the existing regulation regarded not to be sufficient since the declaration of crypto assets as a financial product in October 2022.
“The Declaration, in effect, puts in place a regulatory and licensing regime for persons providing financial services in respect of crypto assets. With the declaration in place, it is not necessarily tailored around crypto assets services providers, and the specific risks posed in the crypto asset environment. Therefore, there is need to develop bespoke and/or refine further the existing framework to ensure that it is fit for purpose and addresses crypto asset specific risk, without stifling innovation in a significant manner.”
– South Africa’s Financial Sector Conduct Authority
Based on the study, Cape Town leads the way in head office location with the largest percentage of Crypto Asset FSPs having established their head offices in the city. It is followed by Johannesburg (33%) and Pretoria (7%).
“The results bear testimony to the fact that Cape Town is considered the largest technology hub in Africa and has been dubbed the Silicon Valley of Africa, home to more than 450 tech startups,” FCSA added.
South African Crypto Asset FSPs recorded the highest monthly transaction value which was over ZAR8 billion in November 2022. The average crypto assets traded were approximately ZAR520 million per month during the year.
South Africa is one of the African countries with the highest number of crypto assets users in the region.
The data, drawn from 47 crypto financial service providers, showed that more than half of the Crypto Asset FSPs have built their businesses around retail customers, with crypto exchanges the most common business.
The majority of Crypto Asset FSPs charge trading fees (38%) followed by 25% who earn their revenue from administration fees while 20% earn revenue from advice fees:
Furthermore, 38% of the Crypto Asset FSPs received revenue less than ZAR one million ($5,2671), while 46% received revenue between ZAR 1 and 50 million ($2,633,803). About 10% of Crypto Asset FSPs derive their income from both regulated and unregulated financial services.
The majority of Crypto Asset FSPs in South Africa provide financial services by making use of unbacked crypto assets (60%) which include the likes of Bitcoin and Ethereum, followed by stablecoins (26%) such as USD Coin and Binance Coin. This is then followed by security tokens (7%) and NFT tokens (4%).
According to FCSA, 128 applications for crypto asset service provider licenses have been received as of November 30, 2023. Unlicensed firms risk closure by year’s end.
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