Why South Africa is cracking down on big cryptocurrency exchanges

South Africa’s Financial Sector Conduct Authority (FSCA) has been cracking down on big international cryptocurrency exchanges that offer services such as margin trading.

Margin trading essentially lets you place a bet on whether a cryptocurrency’s price will go up or down, and then receive a payout that is multiples higher than simply buying and selling the underlying token.

However, depending on the amount of leverage you select for such a trade, even a slight movement of the price in the wrong direction could cause you to lose your whole bet.

Therefore,

this is an extremely high-risk, high-reward way to trade. Especially when considering the volatility of the cryptocurrency market.

The FSCA began its enforcement on platforms that offer these kinds of products with the biggest exchange by trading volume in the world — Binance.

Binance also offers leverage of up 100× on some cryptocurrencies.

It began with a strangely-worded warning issued in September. By October, Binance had announced that South Africans would be banned from accessing its margin trading functionality.

This year,

the FSCA issued warnings against two other major exchanges — FTX and ByBit.

Following the FSCA’s warning, both companies said that they have reached out to the regulator to try and resolve the matter.

The FSCA’s head of enforcement Brandon Topham explained to MyBroadband that their steps against these platforms have nothing to do with them being crypto exchanges.

“If they offer a derivative product with crypto as the underlying or reference asset, then they and others must register as an Over the Counter Derivative Product provider (ODP),” Topham stated

“It has nothing to do with the crypto and everything to do with the derivative product.”

He said that they aren’t specifically targeting cryptocurrency exchanges.

“We are looking at speaking with a number of ODP providers who are not registered with us.”

Topham said that besides registering as an ODP if they offer margin trading, crypto-asset service providers currently do not need to get a licence to operate in South Africa.

“We are looking at creating a regulatory environment for them to be registered in to protect the customers and legitimate players from exploitation. This is currently underway,” Topham said.

The FSCA has published its intention to declare crypto assets as a financial product and that work is underway he said.

“Once the process of public commentary and our response is finalised, the framework will be in place and we will be one of the most progressive countries in the world at this stage,” Topham stated.

“We want to enable. We are not trying to stop the development. We just can not rush into this.”