3 new cryptocurrency rules are coming for South Africa

Cryptocurrency is gaining momentum in South Africa and the government made it clear in its 2022 budget speech that it takes it very seriously, says consultancy Tax Consulting SA.

In the 2022 budget review, the government put its cards on the table by proposing that regulators need to be put in place to protect crypto owners, the firm said.

The Government has adopted the measures proposed by the Intergovernmental Fintech Working Group (“IFWG”) which provide:

• Including crypto asset service providers such as accountable institutions under the Financial Intelligence Center Act (2001). This change would address concerns about money laundering and terrorist financing from crypto assets and align the law with the standards set by the FATF for virtual assets and related service providers. The proposed amendments to the law were published for public consultation in June 2020 and are expected to be completed in 2022.

• Protecting consumers by allowing for the declaration of crypto assets as a financial product under the Financial Advisory and Intermediary Services Act (2002). According to this, any person who provides advisory or brokerage services in connection with crypto assets must be recognized as a financial service provider within the meaning of the law and must meet the requirements of the law. This includes crypto asset exchanges and platforms, as well as advisors and brokers. This work is expected to be completed in 2022.

• Enhancing monitoring and reporting of crypto asset transactions to comply with the Exchange Control Regulations of 1961. The process of including crypto assets in the regulations is underway.

What do these intrusions mean for South African crypto owners？

The first and second interventions explain the need for a regulator to regulate cryptocurrency in South Africa, Tax Consulting SA said.

“These interventions are aimed at companies and individuals who ”trade in the market with clients crypto assets and later disappear with the money.

“ Businesses and individuals must register with and comply with the requirements of the Financial Sector Conduct Authority (FSCA). Intervention 3 states that the government intends to step up its surveillance of crypto users using South African exchanges to send crypto assets to an international exchange such as Binance, etc.”

According to Tax Consulting SA, this practice is currently used for two reasons:

• South African exchanges do not offer all of the crypto trading pairs that international exchanges like Binance offer.

• Crypto users participate in arbitrage trading. Arbitrage trading is when users buy crypto internationally - where it's usually cheaper - and then send it to their South African exchange, where it's sold in South Africa for a higher premium. South African prices are generally more expensive than international prices.

Crypto owners currently have a discretionary allowance of R1 million per fiscal year, which allows them to send money/crypto abroad without requiring South African Reserve Bank (SARB) approval.

“This decision is aimed at people sending more than 1 million Rand who do not receive the required approval from the SARB.”

Why regulation is necessary？

Crypto owners should view these proposed interventions as a proactive approach by the government to protect both the consumer and the South African fiscus, Tax Consulting SA said.

“South Africa has seen a surge in cryptocurrency theft and the need for regulation has been high on the government radar. This follows high-profile cases in which company founders have allegedly stolen billions of dollars in crypto assets from South African crypto owners.”

As the cryptocurrency is volatile and regulation has not yet been formally imposed, it is important that the crypto owner is armed with the right information to protect their assets from theft, it said.

According to Ruan Stander, Cryptocurrency Accountant at Tax Consulting South Africa, crypto assets must be treated with the same security measures as a personal bank account.

Just like a bank account has a security PIN that must always be kept secret, a cryptocurrency account has an Application Program Interface (API) key. This API key should also be kept private.

Customers should avoid disclosing their API keys and if they give them to anyone then they should be set to read-only.

“When you generate your API key, you can filter the rights for this generated API key. It's very rare that someone will ask for your API key, and when they do, the customer needs to be very careful and never be afraid to question it,” explains Stander.

The crypto owner needs to remember that if it sounds too good to be true, it usually is, he said.

“When companies offer you 5% growth a day, that's a bad sign. Even if companies are offering growth of 1% to 2% per day, this should be closely scrutinized as such cryptocurrency growth is difficult to achieve.”