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Africa begins licensing crypto as verified transactions hits US $117 billion

South Africa and Nigeria are moving to license cryptocurrency firms to ensure that the benefits of virtual currencies accrue locally, as Africa's off-the-grid transaction values shoot higher than the GDP of Kenya.

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By Conrad Onyango

Regulators in Africa are taking steps to bring crypto entities under official oversight as treasuries seek to blunt fiscal risks amid a surge in demand for digital assets.

Authorities in South Africa and Nigeria, the continent’s most ‘crypto-ready’ countries, are leading the continent’s efforts to place crypto dealers under a licensing regime to protect consumers against money laundering and terrorism-related risks.

Bringing crypto dealers under government radar will also ensure that future transaction benefits flow into the exchequer, and will help safeguard the value of local currencies.

South Africa’s Financial Sector Conduct Authority (FSCA) recently approved operating licenses for 59 cryptocurrency firms as of March 12, 2024.

The cryptocurrency firms offer a range of services including advisory services, exchanges, payment gateways, crypto-to-crypto and crypto-to-fiat conversion, crypto asset arbitrage, tokenisation, provision of index-based products, and wallet services.

At the FSCA Industry Conference 2024 in mid-March, FSCA divisional executive Felicity Mabaso, revealed that the authority had received 355 license applications, with 262 applications still undergoing vetting.

“To date we have approved 59 applications and the communications to the relevant applicants will be sent out in due course. After the communication and their status are updated then we will hand over those portfolios to our supervision team for ongoing supervision of these asset classes” said Mabaso.

Until now, African consumers have mostly used peer-to-peer (P2P) crypto exchange platforms to sidestep legal and regulatory headwinds.

Peer-to-peer crypto trading facilitates direct digital currency transactions between individuals, circumventing central authority, a catalyst behind the widespread adoption of cryptocurrencies, particularly Bitcoin, across Africa.

In Nigeria, Binance, a global crypto exchange, is under criminal investigation with authorities accusing it of abetting money laundering.

Nigeria’s Federal Inland Revenue Service (FIRS) recently filed four charges relating to tax evasion against Binance at the Federal High Court in Abuja, according to media reports.

The charges also list the company’s senior executives, Tigran Gambaryan and Nadeem Anjarwalla (who has since escaped custody), for violating the country’s tax regulations.

“The Nigerian government had, in the past three months, been cracking down on suspected money launderers and terrorism financiers, some of whom it alleged are using the Binance platform for criminal activities,” Nigeria’s Premium Times reported.

In early March, Binance announced it had discontinued all Nigerian Naira services.

“Binance will not support deposits of NGN after 2024-03-05 14:00 (UTC). Withdrawals of NGN will not be supported after 2024-03-08,” it said in an announcement.

On its website, Binance describes its P2P as the largest P2P exchange platform with more than 800+ payment methods including M-pesa in Kenya and 100+ fiat currencies globally and boasts offering its users zero transaction fees. The platform, launched in 2019, allows users to transact and swap assets without needing to track charts and orders.

These attractive P2P features have been attributed to the growing adoption and usage of crypto as Nigeria and other African countries experience surging inflation and a declining local currency.

According to Binance, its P2P platform had processed US$7 billion worth of transactions made through 3.8 million orders, with daily volumes reaching as high as US$54 million by June 2023.

“P2P users on Binance grew sevenfold compared to 2019, and they had plenty of options, with more than 2,000 P2P merchants serving their needs worldwide,” said Binance on its Website.

While cracking down on unlicensed operators, since 2023, Nigeria has largely been easing its stringent stance towards cryptocurrencies, slowly adding rules to gain control and regulate the surging transaction volumes.

Nigeria’s Securities and Exchange Commission announced major amendments to its rules on issuance in March, offering platforms and custody of digital assets to stakeholders and the general public.

Virtual Assets Service Providers (VSAP) will now be required to register with the commission, have their offices based in Nigeria and have their chief executive officer reside in the country.

“No person or entity shall provide any virtual assets service unless registered with the Commission. A Company seeking to operate as a VASP shall be incorporated and have an office in Nigeria. Its Chief Executive Officer/Managing Director or its equivalent shall be resident in Nigeria,” the commission stated in the amended document.

After initially prohibiting banks and other financial institutions from enabling cryptocurrency service providers to operate accounts in 2021, Nigeria’s Central Bank in December 2023 issued guidelines for banks regarding its decision to permit the opening of accounts for virtual asset service providers.

The regulator had initially said that restrictions were needed due to the potential for the financing of terrorism and money laundering on crypto platforms due to the absence of regulations and consumer protection measures.

Despite the 2023 turnaround, Nigeria’s relaxation on crypto, banks and other financial institutions are still “prohibited from holding, trading and/or transacting in virtual currencies on their own account,” according to the Central Bank of Nigeria Director, Financial Policy and Regulation Department, Haruna Mustafa.

The moves by South African and Nigerian authorities come as cryptocurrency transactions in Africa continue to expand massively, with the 2022-2023 value of transactions higher than Kenya’s annual GDP of US$114 billion, according to the 2023 Geography of Cryptocurrency Report by Chainalysis.

Nigeria ranks second overall on the Global Crypto Adoption Index and leads in Africa with a raw transaction value of some US$60 billion.

South Africa has the second-highest transaction value, slightly above US$20 billion, and Kenya comes in third with nearly US$10 billion.

Other African countries experiencing high transaction value include Mauritius, Ghana, and Cameroon.

The moves by both countries to license cryptocurrency opens a window for cryptocurrency firms to compete openly on the continent.

-bird story agency

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