With South Africa receiving more than its fair share of cryptocurrency-related scams, a report suggests that regulators are responding to this challenge by fast-tracking the process of creating a new regulatory framework. As a result, regulators now expect this process, which was preceded “by the publication of proposals earlier in June,” to be complete “in three to six months.”
Acknowledging Risks Associated With Crypto
According to a report, under the requirements of the upcoming regulatory regime, players in South Africa’s financial sector are expected to be aware of the risks that are associated with cryptocurrencies. They are also expected to price in those risks properly.
In the meantime, the report also quotes Kuben Naidoo, the CEO at Prudential Authority, a banking sector regulator, explaining how the drafting process is expected to unfold. The CEO said:
We are trying to put in place the regulatory framework quickly. Defining this as a financial product and then developing the regulatory framework is important.
Defeating Scams via Regulation
Meanwhile, the South African regulators’ increased sense of urgency on the issue comes as the country grapples with the Africrypt debacle, the latest high profile cryptocurrency investment platform to collapse.
As previously reported, Africrypt collapsed soon after its directors Raees and Ameer Cajee fled with investors’ BTC initially believed to be worth billions. Since then, investors have been attempting to locate and recover the missing BTC with the assistance of one South Africa law firm.
Afriypt’s spectacular collapse had been preceded by the demise of Mirror Trading International (MTI) less than six months earlier. Just like Africrypt, MTI collapsed after its CEO Johann Steynberg disappeared with investor funds. Since then, MTI investors have similarly been attempting to recover their funds.
Naidoo, who is also the deputy governor of the South Africa Reserve Bank (SARB), reveals some of the initial steps that regulators plan to take as they seek to avoid a repeat of the MTI and Africrypt type of bitcoin investment scam. One of these steps, according to the report, will include the establishment of know-your-customer rules for crypto exchanges. Additionally, exchanges will be expected to “create systems for the surveillance of the asset class in order to prevent money from being laundered out of the country.”
After this, investor protection guidelines and rules for managing capital risk in the banking sector should come into effect, according to Naidoo.