New cryptocurrency rules heading for South Africa

South Africa is seeing cryptocurrency gain momentum and the government made clear in its 2022 Budget Speech, that it takes it seriously.

The government presented its case in the Budget Review 2022 by proposing the establishment of regulatory bodies to protect crypto owners.

The Intergovernmental Fintech Working Group (“IFWG”) has recommended that the government take the following steps:

  • Incorporating crypto asset service providers into the Financial Intelligence Centre Act 2001. This would address the concerns about money laundering and terror financing via crypto-assets. It also aligns the act with the FATF standards for virtual assets. Public consultation was held in June 2020 and the proposed amendments were made to the act. They are expected to be completed in 2022.
  • Consumer protection is possible by considering declaring crypto assets a financial product under Financial Advisory and Intermediary Services Act (2002). This declaration states that anyone providing advice or intermediary services in relation to crypto-assets should be recognized as a financial service provider under the act. They must also comply with the requirements of the act. This includes crypto-asset platforms and exchanges, as well advisors and brokers. The finalization of this work is expected in 2022.
  • To comply with the Exchange Control Regulations of 1962, we have improved monitoring and reported of crypto assets transactions. The process is underway to include crypto assets into the regulations.

What does this mean for South African crypto owners?

Tax Consulting SA stated that the first and second interventions are evidence of the need for a regulator to regulate cryptocurrency in South Africa.

These interventions target individuals and companies that “trade” on crypto markets with clients’ assets, and then later disappear with the cash.

“Companies as well as individuals will need to register with Financial Sector Conduct Authority (FSCA), and follow their requirements. Intervention 3 states that the government intends to increase its surveillance of crypto users who use South African exchanges for sending crypto assets to international exchanges like Binance, etc.

Tax Consulting SA stated that this practice is currently used because of two reasons.

  • South African exchanges don’t offer all the cryptocurrency trading pairs offered by international exchanges such as Binance.
  • Arbitrage trading is a popular activity among crypto users. Arbitrage trading involves buying crypto overseas, where it is usually cheaper, and then sending it to their South African exchange. There it is sold in South Africa at a higher premium. Prices in South Africa are usually more expensive than international.

Crypto-owners have a R1 million discretionary allowance for each financial year that allows them to send money/crypto abroad without the need for approval from South African Reserve Bank (SARB).

“This ruling applies to individuals who send more than R1million and does not require approval from the SARB”

The reason for regulation

According to Tax Consulting SA, crypto owners should view these proposed interventions as proactive measures by the government to protect the South African fiscus and both the consumer.

“South Africa has witnessed an increase in cryptocurrency theft, and regulation has been high up on the radar for the government.” This is in light of high-profile cases in which company founders have allegedly stolen billions of rands worth crypto assets from South African crypto owner.

It is vital that crypto owners are aware of the right information to protect their assets against theft because cryptocurrency is volatile.

Ruan Stander, Cryptocurrency Analyst at Tax Consulting South Africa says crypto assets should be treated the same way as personal bank accounts.

A cryptocurrency account also has an Application Programme Interface Key (API key), just as a bank account has security pins that must be kept secret. The API key should also be kept secret.

Clients should not give out API Keys. If they do, it should be set to “read-only”.

You can filter the rights of your API key when you generate it. Stander says that it is rare for someone to ask you for your API Key. If they do, it is important to be cautious and not be afraid to challenge it.

Crypto owners need to remember that it is possible to make a good deal of crypto.

Companies offering 5% growth per daily is a red flag. It doesn’t matter if they offer 1% to 22% growth per day, it is worth looking at. This is because cryptocurrency growth can be difficult to attain.