South Africa is fast-tracking the process of bringing in new cryptocurrency regulations to curb the misuse of cryptocurrencies in the country. The process first began with the publication of proposals earlier in June. Regulators expect it to be complete in 3 to 6 months.
Here’s what’s happening:
Restrictions in buying crypto
Although it seems like South Africa is officially embracing cryptocurrency trade and investment laws, reports show that commercial banks in the country are being directed to avoid processing crypto transactions.
Clients are being blocked by South African banks from purchasing cryptocurrencies on international exchanges using their credit and debit cards. Clients reported that they could no longer buy Bitcoin on Binance, the world’s largest digital asset exchange platform.
Absa Bank, one of the largest banks in Africa, barred its clients from purchasing digital currencies on Binance. In an initial message, Absa claimed that such transactions were not permissible in South Africa according to the country’s exchange control regulations.
Pointing out that it was an industry matter, clients were directed to the SA Reserve Bank for clarification.
The South Africa Reserve Bank (SARB) exchange controls
SARB has strict exchange control rules on the selling and buying of crypto assets. It maintains that crypto assets are not legal tenders in South Africa. SARB further notes that foreign exchange or cross-border transfers to purchase crypto assets is not allowed.
Transactions of such nature are prohibited and cannot be approved by the Financial Surveillance Department from an exchange control perspective. Therefore, it would be illegal to directly or indirectly export capital from South Africa without permission from the National Treasury.
The Exchange Control Regulations also deem it a criminal offense to buy crypto assets in South Africa and use them to externalise ‘any right to capital.’ SARB also warned that the repatriation of value to South Africa through crypto assets is not allowed.
This is because the nature of the asset and transaction cannot be reported on the FinSurv Reporting System. In addition, non-residents who introduce crypto assets to South Africa for sale locally won’t be allowed to transfer the sale proceeds abroad.
Tightening the screws on the crypto industry
The exchange control stand by SARB is part of the move by regulators to bring crypto assets, including Bitcoin, under SA regulation.
A position paper published recently by the Intergovernmental Fintech Working Group (IFWG) confirms the ‘firming up’ of initial steps from 2014 to regulate the crypto space. Twenty-five recommendations are made in the paper for a phased-in approach to crypto regulations.
The IFWG is a joint initiative that includes the National Treasury, the SA Reserve Bank, the Financial Sector Conduct Authority, the Financial Intelligence Centre (FIC), and the South African Revenue Service.
Olaotse Matshane, the IFWG chairperson, notes that the crypto-asset ecosystem has grown significantly and includes over 10,000 unique crypto assets. She also points out that crypto assets as an alternative cross-border remittance instrument and investment class have gained traction among retail customers. The position paper outlines a possible regulatory framework. It also calls for better financial literacy for consumers as the retail interest in digital currency grows.
Reducing risks and protecting investors
The move to swiftly bring crypto assets under SA regulation aims to reduce the risks associated with digital currency and provide investors with the protection they currently lack.
One of the IFWG position paper proposals is that providers of crypto asset services must adhere to legislative requirements to combat the financing of terrorism and money laundering. They’ll have to register with the FIC and undertake customer identification, diligence, and verification.
Service providers will also have to keep client records and transactions, monitor for unusual and suspicious activity, and report such transactions, including all transactions exceeding R25,000 to the FIC.
Cryptocurrency investors have welcomed the move saying it will provide legitimacy and enhance general trust and stability of the cryptocurrency market in SA. Bringing crypto-assets under SA regulation will address the immediate risks around consumer protection, cross-border financial flows, and financing terrorist activities.
A backdrop of scams and ponzi schemes
The already high inherent risks of cryptocurrencies are compounded by increased scams and Ponzi schemes in South Africa. This year alone, South Africa has faced two of the largest crypto scams in the world, where investors have lost close to $4 billion.
Many Ponzi-type schemes use crypto assets as a lure to justifying excessive promised returns. In January, the CEO of Mirror Trading International, which was operating as a crypto trading club, disappeared with $170 million after promising investors 10% returns.
This incident is child’s play compared to the one flagged in April. The CEOs of South African investment firm Africrypt disappeared with $3.8 billion in Bitcoin in what is regarded as the most prominent exit scam in crypto history.
Africrypt offered investors exceptionally high and unrealistic returns, promising a minimum return of five times the amount invested. SA’s Financial Sector Conduct Authority pointed out that it couldn’t help the victims since cryptocurrency is not a regulated product.
With a backdrop of such incidents, South Africa is leading the charge to regulate cryptocurrency in the continent. The IFWG also urges consumers to fully understand the services and products and the associated risks before committing any investments.
Marketing of crypto assets is often very biased and highlights the potential upsides only with little to no consideration of the massive potential downsides. As a consumer, you’re encouraged to only deal with registered and regulated crypto asset security programs (CASPs).
The IFWG points out that they intend to follow six principles in crypto regulations:
- They must be appropriately regulated.
- The regulatory approach will be informed by the principles of “same activity, same risk, same regulations.”
- Crypto asset regulation must apply a risk-based approach.
- A joint and genuinely collaborative approach to regulation must be maintained.
- The crypto market’s dynamic development must be proactively monitored and knowledge on emerging international best practices maintained.
- Digital financial literacy and digital literacy levels must be increased among consumers and potential consumers.
Understanding your financial obligations when leaving South Africa
Not sure what to do with your crypto assets when leaving South Africa? Ask a team member at FinGlobal! We’re willing to provide information and advice.
That said, we specialise in helping South African expats all over the world get their tax and financial emigration in order when exiting the country. Whether you’re already in the throes of a move or just considering your options, it’s best to know what your financial and tax obligations are as soon as possible.
At FinGlobal, we have ten years of experience in the industry, which puts us in a perfect position to assist you. Want more information and advice? Get in touch with us. You can give us a call on +27 28 312 2764 or email us at firstname.lastname@example.org today.