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New laws desperately needed to curb cryptocurrency scams in South Africa

By August 6, 2021FinGlobal

New laws desperately needed to curb cryptocurrency scams in South Africa

August 6, 2021

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While the Financial Sector Conduct Authority (FSCA) grapples with how to regulate crypto-asset investments in South Africa, consumers have been warned that this space is at high risk with scammers looking to take advantage. Here’s what you need to know about cryptocurrencies in South Africa, how to avoid being scammed, and what to expect from the upcoming crypto regulations.

Cryptocurrency

Massive crypto scams driving regulatory change

South Africa is under immense pressure to bring in new regulations to prevent the misuse of cryptocurrencies, having been hit with two of the biggest crypto scams in the world this year alone, in which nearly $4 billion of investor wealth mysteriously vanished. Authorities are currently working on having better controls in place, and hopefully, they’ll get it right before another scam hits the market. A new cryptocurrency regulatory timeline makes provision for the finalisation of a framework in 3 – 6 months after the public participation processes have been followed.  According to Kuben Naidoo, CEO of the Prudential Authority, South Africa’s banking regulator, the Authority has received an influx of complaints from local investors who have lost their savings by getting involved in crypto-related investments they did not understand, or a scam packaged as a crypto investment promising unrealistic high returns.

Okay, but wait. What are cryptocurrencies?

Cryptoassets, or cryptocurrencies as they’re generally named, are digital representations of value not issued by a central bank, like the South African Reserve Bank. You’ve probably heard of Bitcoin (BTC) and Ethereum (ETH), and crypto-assets such as these are traded, transferred, and stored electronically, and they are rising in popularity,  being used for payments, investments, and capital-raising. That sounds innocuous enough, right? Digital currency, basically.

However, that’s not the whole picture. Crypto-related investments are not regulated by the FSCA or any other body in SA. This means that if something goes pear-shaped, you’re unlikely to get your money back and you’ll be left with no means of recourse. This is why the Prudential Authority is of the view that crypto should be regulated as a financial product, which would place incidents of misuse under the regulatory domain of the FSCA.

Advice from the Prudential Authority on how to avoid a crypto scam:

  • Don’t be afraid of being left out of the next big thing and always remember there is no such thing as a safe get-rich-quick scheme. 
  • Don’t be swayed by marketing material that spotlight the possible rewards, while downplaying the huge risk of investing in crypto assets.
  • Ensure you have a thorough understanding of what you’re investing in, as well as a clear picture of the financial risks involved in what you’re doing.

When making a crypto-related investment, bear in mind the following:

  • Crypto investment firms often oversell the potential payouts while underplaying the risks, so take everything with a pinch of salt and do your own research. If it sounds too good to be true, it genuinely is.
  • Investing in crypto assets, or investments and lending linked to cryptocurrencies, means that someone is taking very big risks with investor money, so you should be prepared for the worst to happen. In other words, don’t go into an investment if you’re not prepared to lose all your money. 
  • Irrespective of your risk appetite, investors are strongly urged to ensure that crypto-assets only make up a small portion of their investment portfolio until this area is properly regulated.

What regulatory measures are coming to control cryptocurrencies and crypto-investments in South Africa?

The FSCA is hard at work formulating the right measures to control certain aspects and players in the crypto asset space, which will be rolled out over the next few months. Their first step is likely to involve setting up official know-your-customer (KYC) standards for crypto exchanges, along with the establishment of digital systems to prevent money laundering and terrorism finance.

Crypto assets will be brought into the South African regulatory scope in a phased and structured manner. To this end, the Intergovernmental Fintech Working Group released a position paper listing their 25 recommendations along with an outline of a possible regulatory framework, while highlighting the need for increased consumer financial literacy as retail interest in digital currency and crypto-assets grows.

FinGlobal: your trusted financial services provider

For your peace of mind as a South African expat, it’s important to choose a reputable partner that can handle your cross-border financial requirements, in a time-efficient and compliant manner, ensuring that everything happens fast and in line with the law.

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  • Licensed Financial Services Provider (# 42872) with the South African Financial Sector Conduct Authority (FSCA). Click here for membership verification.
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  • Compliant with the Consumer Protection Act 68 of 2008 (CPA) and the Protection of Personal Information Act 4 of 2013 (POPI).
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