This article summarises the crypto assets market study conducted by the Financial Sector Conduct Authority (FSCA) in South Africa. The purpose of the study was to better understand crypto asset activities and risks to support the development of regulation and supervision of crypto asset financial service providers (FSPs). The Crypto Assets Market Study was intended to gain more information about the industry to assist in the formulation of a comprehensive regulation for South Africa’s crypto economy.

Here is a summary of key findings:

Most FSPs provide services using unbacked crypto assets like Bitcoin, followed by stablecoins. These are primarily used for speculation rather than as mediums of exchange.
Many FSP business models mirror traditional financial activities like exchanges and advisory services. This requires consumers to trust centralized entities, conflicting with crypto's disintermediation function.
Cape Town leads in FSP head office locations, followed by Johannesburg and Pretoria. 10% of FSPs have foreign head offices which may require local branches for oversight.
Over half of FSPs earn less than ZAR 50 million in revenue. 10% also operate in regulated financial services.
Key risks identified include volatility, cybersecurity threats, lack of widespread adoption, AML/KYC issues, and more. Most FSPs claim to disclose these risks.
Over 50% of FSPs focus entirely on retail consumers. Understanding retail participation will be critical in assessing consumer protection risks. Most FSPs received over 1,500 customer complaints in 2022. Key complaint categories were service quality, product design, and investment performance.

The findings will help the FSCA enhance the regulatory and supervisory approach for crypto assets to mitigate risks and promote good customer outcomes.

Overall, the findings reveal that most providers utilize unbacked crypto assets primarily for speculation, with business models mirroring traditional finance. Key risks like volatility and cyber threats are claimed to be disclosed, although over 50% of providers service retail consumers exclusively. With significant customer complaints and retail participation signalling high consumer protection risk, the study's revelations will enable enhanced regulatory approaches to mitigate inherent crypto asset risks while promoting favourable customer outcomes.