Major South African crypto exchange receives licences

South Africa’s biggest cryptocurrency exchange by trading volume, VALR, has announced that the Financial Sector Conduct Authority (FSCA) has issued its crypto asset service provider (CASP) licence.

VALR said it was granted a Category I and Category II license.

Headquartered in Johannesburg, VALR has secured $55 million in equity funding from investors like Pantera Capital, Coinbase Ventures, and Avon Ventures (a fund affiliated with the parent company of Fidelity Investments).

VALR said it now serves over 1000 corporate and institutional clients and more than half a million traders globally.

It joins Luno, South Africa’s largest exchange by individual customers, which received its licence last week.

Other companies that have received licences include social investing marketplace Zignaly (as Merritt Administrators), investment product provider Jaltech, and crypto arbitrage player Future Forex.

This comes after the FSCA revealed in mid-March that it had approved around 60 licences and expected to issue them by the end of the month.

However, only a handful of companies have publicly disclosed that they have received licences.

The FSCA told Bloomberg last month that more than 300 crypto-asset providers sought approvals.

It had given crypto providers until 30 November to apply for licenses or risk facing enforcement action.

“We are processing those licensing applications and we’re doing so in a phased kind of manner given the numbers,” said FSCA Commissioner Unathi Kamlana.

The regulator opted not to develop a separate framework for crypto operators and instead will oversee the firms under the existing Financial Advisory and Intermediary Services Act.

With crypto exchanges falling under the FAIS Act, consumers will also have recourse and protections that don’t exist right now, with the regulator being able to take enforcement action if an operator breaches any of the law’s requirements.

“As we license and supervise, we will discover that perhaps there are gaps that cannot be closed by the existing regulatory framework, the FAIS Act. We might need to build on that as we discover what those are,” said Kamlana.

“If you wait for the Rolls-Royce kind of regulatory framework, you still have those risks anyway.”

Kamlana believes the current law will cover most gaps.

To obtain a license, a crypto asset FSP must meet several requirements to ensure compliance and protect consumers.

Kelle Gagné, counsel for law firm Allen & Overy, summarised the requirements as follows:

• Provide routine business information and disclose details about their directors, trustees, partners, members, key individuals and representatives.
• Individuals must meet the ‘Fit and Proper requirements for Financial Services Providers’ demonstrating qualities of honesty, integrity, competency and engagement in continuous professional development.
• Applicants and their key individuals and representatives must have no history of legal or professional misconduct and must not be under investigation or proceedings that could result in conviction.
• Competence is assessed based on experience, qualifications, and performance in regulatory exams.
• If not already regulated as a bank or insurer, the applicant must demonstrate financial soundness, with different requirements depending on whether the applicant will hold or receive client assets.
• All applicants must meet working capital and liquidity requirements, with higher thresholds for those holding client assets.
• Operational ability is also vital, requiring applicants to submit a comprehensive business plan for at least three years, along with risk management, governance, remuneration, business recovery, and compliance frameworks.
• If any functions are outsourced, the applicant must disclose this to the FSCA.

VALR said that by licensing and regulating CASPs, South Africa aims to foster trust, protect investors and consumers, and promote sustainable growth within the crypto industry.

“Obtaining the CASP license from the FSCA is a monumental achievement for VALR,” said co-founder and CEO Farzam Ehsani.

“Over the past six years, we have actively collaborated with the South African regulators who have now pioneered a regulatory regime, allowing innovation to flourish while protecting the public interest.”

Ehsani said VALR’s license emphasises its dedication to compliance, security, and providing a trustworthy platform for the crypto community.

“We welcome this regulatory milestone for South Africa and applaud the regulators for taking this important step for the nation.”