Over 90 financial services providers have applied for licences with the Financial Sector Conduct Authority (FSCA) to offer crypto-related services.
In October 2022, the FSCA declared cryptocurrencies a financial product, allowing crypto trading platforms to become licenced and placing them under its regulatory purview.
This also led to the FSCA conducting an in-depth study of the crypto industry and its potential risks to South Africa’s economy and financial sector.
The study was conducted to help the FSCA understand the risks of the widespread adoption of crypto assets on the traditional financial system and the economy, said Awelani Rahulani, head of the regulator’s fintech division.
“It will place us in a position where we know how we could respond in terms of our regulatory frameworks, licencing of products, and supervision,” Rahulani said.
The study also showed that unbacked crypto assets, such as Bitcoin, are the most popular type in South Africa, mimicking global trends.
This shows that most people engage with crypto for speculative purposes and invest with the intention of making a quick return and exiting the space, Rahulani said.
It also revealed that the vast majority of crypto trading platforms used by South Africans are based within the country.
This makes it easy for the FSCA to regulate, with about 45% of all crypto platforms being based in Cape Town alone.
Interestingly, most businesses that applied for licences in South Africa to offer crypto services are registered financial services providers.
Tarris Arnold, Business Development Manager at Luno, said, “Since the application window opened in June, we have seen much higher interest in crypto and engagements from incumbents and businesses in South Africa.”
Crypto assets are becoming increasingly attractive to financial services companies as an investment class.
“Even financial services companies that don’t buy into the fundamental value of crypto or its other use cases see value in the volatility associated with crypto assets,” Arnold said.
“Volatility is beneficial as it often equates to greater profit margins. In addition, crypto is a non-correlating asset class and thus provides some mitigation for investments in traditional markets,” Arnold explained.
While crypto was still unregulated, it was specifically excluded from investments by pension funds and other institutions.
However, regulation of the sector opens the door to institutional investment – a much greater pool of capital than retail investors.
“We see an uptick in interest from institutions. South Africa’s large banks have had crypto teams for years, and there are signs that they are gearing up to offer their customers crypto products and services,” Arnold said.