The major event that pushed the South African government to make the regulations on crypto-industry was the scam last year. Due to the unexpected comments and announcements, companies that are operating in the country are trying to find locations that will be more stable for their business to operate among them are Singapore and the UK and thinking about moving headquarters abroad.
Potential clients were having a lack of oversight and limits on marketing, this is why a Cape Town-based operator is shifting its head office to the UK and planning to establish another location in Germany. Moreover, Luno, which is Africa’s largest digital currency platform is registered in London and represented in Singapore. Not a lot of people would anticipate that cryptocurrencies would become the mainstream in the financial sector but their prosperity started from the global covid pandemic. For example, Elon Musk’s company is starting to receive bitcoin as a payment method that has worked in favor of the price uprise and reached its historical maximum. This did not help in terms of regulations in South Africa as a suspected Ponzi scheme may have caused investors to lose more than $1.2 billion worth of bitcoin.
The regulations in South Africa
There are two types of regulations in terms of crypto-industry in the country. One being the Approach to Assets Created Through Blockchain and the second, Custodianship of Cryptocurrencies by Financial Institutions. The first one means that the government issued a statement warning the public about the risks of transactions and investments in crypto assets, at the time referred to as virtual currency. Moreover, it includes that despite that, there were no special rules or laws regarding crypto transactions. Because of this, it was impossible to classify it as legal tender. In 2018, the SARS issued a clarification on the tax status of virtual currencies. It also includes client protection, as it is a very important part in this regard as the system guarantees anonymity and many people might appear to be vulnerable towards the companies that are not operating the way they should be doing it. They were also considering restrictions with regard to cross-border or foreign exchange transfers for the purpose of buying crypto assets.
As of today, anti-money laundering laws are not applicable towards cryptocurrencies however, they were considering the imposition of taxation implications for crypto assets. On the other hand, in terms of Custodianship of Cryptocurrencies by Financial Institutions, South Africa does not have the specific laws that are regulating the custodianship on cryptocurrencies.
Scam of the year
Mirror Trading Investment was placed in provisional liquidation because of the world’s biggest crypto crime in 2020. The firm allegedly collected over 23,000 Bitcoin from the investors, and its CEO fled to Brazil. It is said that South Africa was always well-known because of its sad history of the pyramid and Ponzi schemes and crypto found the place very convenient. This is why they justify the regulations, that honest companies that are operating in the industry are keener on regulations and even welcome them as it makes it possible for the clients to invest with confidence and without hesitation.
Because of the proposal for the regulations, it is perceived that because of this, South Africa is ahead of the rest of the continent as it is suggesting the table for negotiation for all the stakeholders. Nigeria was planning to be the one to join the initiative in terms of regulations but is waiting for several procedures to be completed. The main justification from South Africa was that regulations are to seek better protection for consumers, as a lot of scammers are operating on the market and people are very vulnerable towards them as they are made to believe about its validity. If the regulations are imposed, clients will not have to doubt the validity of the company.
The entertainment industry has also witnessed the introduction of the rules because many people are quite skeptical about the increased role of online gambling, stating that Bitcoin casinos in Nigeria are very popular and more and more people are trying to become involved in it. As it is impossible to track the transactions and to check where the money in the country is going, it makes the regulations more necessary to avoid them from possible losses or scams.
The upcoming regulations were met with a welcome from the side of banks but currently, they are split in their approach to industry players. Many banks are still having different attitudes regarding the regulation and FirstRand’s First National Bank does not have a banking relationship with virtual-currency exchanges or traders.
Moreover, an unregulated environment has made it difficult for the crypto platforms as well to operate on the country’s market, because this makes it very difficult for the customers to buy bitcoin with their local fiat currency, while also facing massive inflation. The opposition to these regulations says that South Africa seems to go in the opposite direction of some of the more developed market pioneers and innovators in this space. For regulators to apply hundred-year-old securities regulations to the novel cryptocurrency asset class seems lazy.”
Finally, to sum up, there is a tendency in the world, either implementing bitcoin as a payment method and accepting it the way it exists or imposing restrictions in order to protect the country and the clients. Africa’s biggest market, in this case, Nigeria is planning to do the same but South Africa seems to be more advanced as it is going to have the proposals on the table any time soon. The main justification for the regulations, unlike India, is banning the exchange on national platforms and making people restricted in their options, South Africa is going to impose the regulations to protect the clients from possible upcoming scams, for which they already have the experience. It is interesting how the process is going to finish and whether it is going to have the spillover effect or not.