South African financial service providers have prepared to offer cryptocurrency products and services to customers following regulatory changes in the country.
This comes after the South African Financial Sector Conduct Authority (FSCA) amended its 2002 financial advisory act on Oct. 19 to define crypto assets in the country as financial products. Most importantly, the definition means that cryptocurrencies can now be offered by financial service providers, both domestic and international, as long as they are licensed in South Africa.
South Africa already boasts a growing number of retail cryptocurrency users, estimated at 6 million people. The South African Reserve Bank has also taken a measured approach in its regulatory stance in the sector in an effort to ensure investor protection without hampering innovation.
Cointelegraph has contacted two prominent cryptocurrency exchanges operating in the country, Luno and VALR, both with significant user bases.. Firms are well placed to provide information on the latest regulatory action as they serve both retail and institutional clients.
VALR CEO Farzam Ehsani called the FSCA move “good news for South Africa that paves the way for regulation of crypto asset service providers in the country,” while ensuring that “they are serving the public.” with integrity.”
Marius Reitz, Luno’s Managing Director for Africa, echoed these sentiments highlighting the importance of regulatory clarity not only for investors but for financial service providers in the country:
“The licensing requirements that will result from this classification will drive high standards in the industry, especially in relation to consumer protection, and potential investors will be able to easily identify providers that meet regulatory requirements.”
Reitz also pointed to the key benefit, now allowing financial advisors to formally advise clients on cryptocurrency investments. Before the FSCA changed the definition of crypto assets, financial advisors were not allowed to give advice on unregulated investment opportunities.
“The regulatory framework paves the way for broader institutional adoption. How this plays out will depend on the ability of more traditional financial companies and even banks to be able to fully support this newly classified financial product.”
Chris Becker, CEO of Cyber Banking at Tyme Bank, also provided information to Cointelegraph. The South African digital bank welcomed the move to regulate cryptocurrencies within existing frameworks as it seeks to boost digital money services and payments.
Becker believes the move could reassure people who may be wary of engaging with crypto asset service providers due to concerns about lack of regulation, having worked for private wealth manager Investec as its leader. of blockchain in its former role.
Becker also agreed that the regulatory move may support further long-term adoption if financial services providers use the new product category to offer crypto asset products to their large customer bases.
Nonetheless, regulatory uncertainty has not stopped companies and institutions from getting exposure to cryptocurrencies in South Africa. Both exchanges already work with several institutional clients.
VALR serves over 700 companies and institutions, including several large traditional financial institutions in South Africa. Ehsani said the company has been focused on building its infrastructure for the past five years to bridge the country’s traditional finance and cryptocurrency markets. Luno also allows corporate clients to use its platform.
For his part, Becker highlighted the reality that traditional financial service providers do not necessarily invest in cryptocurrencies:
“Other regulations, such as the Pension Funds Law and the Foreign Exchange Control Law, do not yet contemplate crypto assets.”
The VALR CEO also believes that the country could see cryptocurrency-related exchange-traded funds (ETFs) and similar financial products being developed and launched in the coming months now that regulatory oversight is becoming clear:
“I think we will start to see a lot more crypto-related financial products in the near future. Many people have been working on this for some time and now, with the statement, we should expect much of this work to become visible to the public.”
Reitz offered a more measured take on the matter, highlighting the FSCA announcement as a first step in creating a comprehensive regulatory framework for crypto assets in South Africa.. He believes that more clarity is needed around the broader application of the regulation regarding permitted cryptocurrency financial products, highlighting the United States point of view as an example:
“In the United States, Bitcoin ETFs can only hold BTC futures contracts or company shares and other ETFs with exposure to cryptocurrencies, as the SEC continues to assess the approval of ETFs that hold BTC directly.”
Meanwhile, the FSCA delivered a more sobering message at a press conference accompanying the October 19 announcement. As Reuters initially reported, the head of the FSCA Regulatory Frameworks Department, Eugene Du Toit, made it clear that cryptocurrencies are not recognized as legal tender in South Africa.
The regulator also stressed the importance of being able to tackle scams and fraudulent activities in the space in an effort to protect local investors.
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