South Africa is paving the way for many African countries
when it comes to trade and investments of cryptocurrency and Bitcoin. While most other commercial banks in Africa avoid processing crypto asset trades, South Africa, Kenya, Ghana and Nigeria are on the forefront of trade with an accumulative amount around $186 million dollars (over R200 billion) in the first quarter of 2021.
While South Africa has outshined many in the cryptocurrency field, the increased amount of scams in the last 18 months has led SA to urgently pursue strengthening the oversight of cryptocurrency assets. According to Kuben Naidoo (chief executive officer of South Africa’s banking regulator), since the publication of proposals earlier in June, a new regulatory timeline finalizing this framework is set for three to six months from now.
“We are trying to put in place the regulatory framework quickly,” said Naidoo, who’s also a deputy governor of the South African central bank, “our view is that crypto is a financial product and should be regulated as a financial product.”
An alleged Ponzi Scheme resulted in and estimated $3.6 billion Bitcoin disappearing and Naidoo reported, “Now we are defining this as a financial product and if there are scams where the public is being duped, given incorrect or false information, it is certainly a market conduct issue that should be taken seriously.”
Until now, South African providers have remained relatively unchecked in crypto asset trading. This has invited scandal to many companies, including the most recent collapse to the Johannesburg-based ‘Mirror Trading International’. This is the largest crypto-related scam in South Africa (2020) by blockchain data platform Chainalysis.
Justice Minister Ronald Lamola said, “Cryptocurrencies do not fit neatly within the current regulatory framework. One of the unique features of cryptocurrency is its ability to operate without third-party intermediaries or similar safety mechanisms. The consequence though is that the potential financial and consumer risks are quite pronounced.”
The UN emphasised that “ given the constantly changing nature of the cryptocurrency world, one of the biggest risks is lack of proper regulation” particularly in certain African countries. While Marius Reitz, general manager in Africa for Luno, stated that “Any incidents of fraud draw attention to the importance of regulation and we hope that the clear guidelines in South Africa […] and globally […] could lead to wider adoption by enhancing stability and trust in the market. Similarly, regulations will also raise standards and barriers to entry and weed out bad actors or service providers with a low regard and capability to safeguard customer information and money.”
At Smith Attorneys, we understand the construction and development of Cryptocurrencies and Blockchain Markets; and have the necessary skills and expertise to ensure that our clients comply with all the evolving legislative framework regarding this digital currency. Our attorneys have first-hand knowledge and experience in dealing with multiple recovery and litigation matters, including three of South Africa’s biggest Cryptocurrency scandals to date.
We regularly assist clients with any cryptocurrency and/or blockchain related disputes and advise on any pending or prospective transactions. Thus, we ensure that our clients comply with the necessary legislation and limit any risk or exposure in relation to the proposed investments.
Read more on the recent interest piece by the Intergovernmental Fintech Working Group (IFWG) and Marius Reitz on the Daily Maverick.