Bitcoin regulation in South Africa looming

South Africa is preparing to regulate cryptocurrencies like Bitcoin as the number of people investing in crypto assets are rapidly increasing.

The price of Bitcoin has skyrocketed over the last year, increasing from R105,000 in January 2020 to over R600,000 earlier this year.

This has attracted renewed interested in Bitcoin and cryptocurrencies, with more investors exploring it as a potential asset class.

Many Bitcoin bulls, like Fundstrat managing partner Tom Lee and Cameron and Tyler Winklevoss, expect the cryptocurrency’s strong run to continue in 2021 as it starts to disrupt gold as a value store.

Others, including Berkshire Hathaway CEO Warren Buffett and economist David Rosenberg, are sceptical about the value of Bitcoin and its current trading levels.

What is undeniable is that Bitcoin continues to make headlines and is making some investors very rich.

A big concern to South African authorities is that the success of Bitcoin has attracted many scammers as it is an unregulated field.

To address this concern, the Financial Sector Conduct Authority (FSCA) published a draft declaration of crypto assets as a financial product under the Financial Advisory and Intermediary Services Act (FAIS).

What this means, in simple terms, is that cryptocurrency exchanges, advisors, and brokers will have to become registered financial services providers (FSPs).

Financial services providers are subject to regulation under the (FAIS) which is administered by the FSCA.

This is not the only measure in the pipeline to regulate cryptocurrencies. Last year the Crypto Assets Regulatory Working Group (CAR WG) published a position paper which made a variety of recommendations pertaining to the regulation of crypto assets.

Brandon Topham gives further details

Brandon Topham, divisional executive for investigations and enforcement at the regulatory Financial Sector Conduct Authority, said they are concerned about the large number of investors who have taken an interest in crypto assets.

Speaking to Biznews, Topham said most regulators around the world are not comfortable with crypto assets which only exist in cyberspace.

“There’s no management, there’s no business behind it. Really, the price is driven purely by sentiment,” he said.

He said there is, however, no other option but to accept that Bitcoin and cryptocurrencies exist and that they have taken the world by storm.

“For that reason, we’ve decided to classify it as a financial asset. So, in the South African legal framework, that would mean that as a financial asset, we would have the ability to issue regulations around the services and the players involved in the sector,” Topham said.

After this declaration comes into effect, South Africans will be encouraged by the FSCA to only deal with people that are registered with them when purchasing crypto assets.

“We will discourage strongly – with warnings – why they should not use a crypto wallet based, for instance, in Cyprus. Because we have got no control over them and we’ve got no assurance that they will honour what they say they’re going to do,” he said.

Topham added that nothing will really change, because a South African that wants to open up a wallet using an offshore location will still be able to do it.

“It won’t be unlawful – just as it’s not unlawful at the moment – but they will definitely have no security that the players they are dealing with are of a reputable nature,” he said.

While the new regulations will not completely safeguard crypto dealings, it is a step closer to make sure investors’ money is looked after.

Topham highlighted that he is against the regulations paving the way for the inclusion of cryptocurrencies in pension funds and unit trusts.

“I would hate to think that my pension has too much exposure to a crypto, but I have no doubt that there already have been requests from pension fund managers and collective investment schemes to get more involved with cryptos in their portfolios,” he said.

Notice of Publication – Draft declaration of crypto assets as a financial product

Statement in support of the draft declaration of crypto assets as a financial product under the financial advisory and intermediary services act

Now read: Crypto assets to be declared “financial products” in South Africa

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Bitcoin regulation in South Africa looming