The Financial Sector Conduct Authority (FSCA) has warned South Africans against investing in cryptocurrency schemes that could see them lose their savings.
It said there has been a sharp increase in cryptocurrency-related investment losses in the past few months and urged South African investors to use caution when buying digital assets.
“The Financial Sector Conduct Authority (FSCA) has noted with concern the increasing volume of crypto assets (cryptos) related losses suffered by financial consumers in the past three months,” the FSCA said.
“The FSCA urges the public to be extremely cautious and vigilant when dealing with cryptos for any financial services business.”
The authority also warned that there is often no recourse for victims of cryptocurrency scams in South Africa, as digital assets are not controlled or regulated by any regulatory body in the country.
“Recently, following the high volumes of complaints to the FSCA and regular media reports of consumers losing some if not all of their savings in high-risk crypto investments as well as crypto-adjacent scams, a crypto health warning was published to the public, highlighting the risky nature of these crypto-assets/products, services, and scams,” the FSCA said.
“The FSCA would like to emphasise, crypto-related investments are not regulated by the Authority or any other body in South Africa.”
“As a result, if something goes wrong, you are not likely to get your money back and will have no recourse against anyone,” it said.
New regulations incoming
The FSCA noted that while the regulation it is currently considering will not affect the status of cryptocurrency itself, those companies that deal with crypto assets will face stricter rules in the future to hold them more accountable.
In November 2020, the FSCA as part of the Intergovernmental Fintech Working Group (IFWG) published a position paper that made a variety of recommendations pertaining to the regulation of crypto assets.
Submissions for public comment were closed on 28 January 2021 and are currently under consideration by the relevant authorities.
“The draft Declaration in no way impacts the status of crypto assets in the context of other laws such as the Financial Sector Regulation Act (FSR Act) exchange control regulations, requirements under the Pension Funds Act (PFA) and Collective Investment Schemes Act (CIS Act) and so forth, nor does it attempt to regulate, legitimise or give credence to crypto-assets,” the FSCA said.
It has acknowledged, however, that the high risks already inherent in crypto assets are further being compounded by scam activity, as well as unregulated firms targeting consumers with marketing material that highlights the rewards, but not the potential downside, of investing in cryptocurrency.
“It is for this reason that the FSCA is working at finding measures to regulate certain aspects and players in the crypto asset space,” it said.
“These measures will be rolled out during the coming months and we are working with other members of the IFWG to better understand and regulate where appropriate crypto assets in South Africa.”
The FSCA discouraged cryptocurrency investments by retirement funds until regulation has been finalised to safeguard investors.
It also reminded South African cryptocurrency investors that if a scheme or investment sounds too good to be true, it usually is.
“Consumer caution is strongly advised to avoid painful or catastrophic financial losses,” the FSCA said.