The Financial Sector Conduct Authority (FSCA) in South Africa is contemplating a significant regulatory requirement for cryptocurrency companies with foreign headquarters to establish a local office. The FSCA highlighted that a small fraction of Crypto Asset Financial Service Providers (FSPs) in South Africa operate from abroad.

“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 a recent market study.

The FSCA argues that enforcing a local branch for the 10% of entities with offshore head offices is crucial for adequate oversight and accountability. The recent Crypto Assets Market Study seeks to enhance industry understanding, especially after officially categorizing crypto assets as financial products in October 2022. The study suggests a need for tailored regulations to address crypto-specific risks while fostering innovation.

"In October 2022, the Financial Sector Conduct Authority (FSCA) officially declared crypto assets as a financial product….There is a need to develop bespoke and/or refine further the existing framework to ensure that it is fit for purpose and addresses crypto asset specific risk, without stifling innovation in a significant manner," the FSCA said in its market study.

According to the FSCA, Cape Town leads in hosting Crypto Asset FSP head offices, followed by Johannesburg and Pretoria, emphasizing Cape Town's position as Africa's premier technology hub.

South Africa’s regulators believe the findings from the market study will be instrumental to drafting an optimal licensing framework for the country’s crypto economy. Already, the country is positioning itself as the most crypto-forward African country, typified by recent moves to adopt a global crypto asset reporting framework and issue licences for only registered crypto asset service providers. While the nation’s licencing framework continues to take shape, the possibility of mandated local presence for all crypto operators in the country is now more likely than before.