South African Regulator May Require Crypto Firms to have a Local Office

• Crypto companies in South Africa with overseas headquarters may be mandated to maintain a local office. 
• The country’s financial sector regulator, FCSA, claims over 10% of crypto firms in the country have their headquarters abroad. 
• According to the regulator, the physical presence will help ensure appropriate oversight and accountability.

The Financial Sector Conduct Authority (FCSA) of South Africa may soon reportedly mandate that cryptocurrency firms with overseas headquarters maintain a local office in the country. 

This move by the regulator follows a Crypto Asset Market Study, which showed that a sizable number of Crypto firms operating in the country have their headquarters in foreign countries. Indeed, the FCSA placed this number at 10%, saying a physical presence will appropriate oversight and accountability. 

“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 the market study.

According to the report, South Africa is one of the African countries with the highest concentration of crypto asset users in the region. Furthermore, quoted data revealed that the majority of the crypto asset services providers have built their businesses around retail customers, with crypto exchanges being the most common business. 

In addition, the Market Study also showed that the majority of Crypto Asset in the country provide financial services by utilizing unbacked crypto assets (60%) such as Bitcoin and Ethereum, followed by stablecoins (26%) such as USD Coin and Binance Coin.

While noting the rapid pace of crypto growth in the country, the regulator added that developing or refining the existing framework remains important. As stated in the report, the regulator said this will ensure the regulation is “fit for purpose and addresses crypto asset-specific risks, without stifling innovation in a significant manner.”

The FCSA said it has received over 128 applications for crypto asset service provider licenses as of November 30, 2023. However, the regulator warned that unlicensed crypto firms risk closure by year’s end.