Cryptocurrency is gaining momentum in South Africa and the government made it clear in its 2022 Budget Speech that it is taking it very seriously, says advisory firm Tax Consulting SA.
In the Budget Review 2022, the government laid its cards on the table by proposing that regulatory bodies need to be established to safeguard the crypto owner, the firm said.
The government has taken the interventions proposed by the Intergovernmental Fintech Working Group (“IFWG”) which stipulate the following:
- Including crypto asset service providers as accountable institutions within the Financial Intelligence Centre Act (2001). This change would address concerns around money laundering and terror risk financing through crypto-assets and align the act to the standards set by the FATF for virtual assets and related service providers. The proposed amendments to the act were published in June 2020 for public consultation and are expected to be finalised in 2022.
- Protecting consumers by considering the declaration of crypto assets as a financial product under the Financial Advisory and Intermediary Services Act (2002). According to this declaration, any person providing advice or intermediary services related to crypto-assets must be recognised as a financial services provider under the act and must comply with the act’s requirements. This will include crypto-asset exchanges and platforms, as well as advisors and brokers. This work is expected to be finalized in 2022.
- Enhancing monitoring and reporting of crypto asset transactions to comply with the Exchange Control Regulations of 1961. The process to include crypto assets in the regulations is underway.
What do these interventions mean for South African crypto owners?
The first and second interventions explain the need for a regulatory body to regulate cryptocurrency in South Africa, Tax Consulting SA said.
“These interventions are aimed at companies and individuals who “trade” on the market with clients’ crypto assets and then later disappear with the money.
“Companies and individuals will be required to register with the Financial Sector Conduct Authority (FSCA) and adhere to their requirements. In intervention 3 it is stated that the government wants to intensify its monitoring of crypto users that use South African exchanges to send crypto assets to an international exchange like Binance etc.”
Tax Consulting SA said this practice is currently used for two reasons:
- The South African exchanges do not offer all the crypto trading pairs that international exchanges like Binance offer.
- Crypto users partake in arbitrage trading. Arbitrage trading is when users buy crypto internationally – where it’s normally cheaper – then send it to their South African exchange where it is sold in South Africa for a higher premium. South African prices are generally more expensive than international prices.
“Crypto-owners currently have a R1-million discretionary allowance per financial year which allows them to send money/crypto overseas without needing approval from the South African Reserve Bank (SARB).
“This ruling is aimed at individuals sending more than R1 million and not obtaining the necessary approval from the SARB.”
Why regulation is necessary
Crypto owners should see these proposed interventions as a proactive approach from the government to protect both the consumer and the South African fiscus, said Tax Consulting SA.
“South Africa has seen an increase in cryptocurrency theft and the need for regulation has been high on the radar of the government. This follows high-profile cases where company founders allegedly stole billions of rands in crypto assets from South African crypto owners.”
With cryptocurrency being volatile and regulation not being formally imposed yet, it is important that the crypto owner is equipped with the correct information to protect their assets from theft, it said.
According to Ruan Stander, Cryptocurrency Accountant at Tax Consulting South Africa, crypto assets need to be treated with the same security measures as a personal bank account.
Just like a bank account has a security PIN that needs to always be kept private, a cryptocurrency account has an Application Programme Interface key (API key). This API key should be kept private as well.
“Clients should avoid giving out their API Keys and if they are going to give it to someone, then it should be set to ‘read-only’.
“When you are generating your API key, you can filter the rights for that API key generated. It is very seldom that someone is going to ask for your API Key, and if they do, then the client needs to be very wary of it and never be afraid to question it,” explains Stander.
The crypto owner needs to remember that if it sounds too good to be true, then it usually is, he said.
“If companies are offering you 5% growth per day, that’s a bad sign. Even if companies are offering 1% to 2% growth per day it should be heavily scrutinized, because such growth in cryptocurrency is difficult to achieve.”