Cryptocurrency has been gaining momentum in South Africa and the South African government has made it clear, in the 2022 Budget Speech, that they are taking it very seriously.
In the Budget Review 2022, the government has laid their cards on the table by proposing that regulatory bodies need to be established to safeguard the crypto owner. 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.” – Page 166, Annexure F, Budget Review 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 assets exchanges and platforms, as well as advisors and brokers. This work is expected to be finalized during 2022.” – Page 166, Annexure F, Budget Review 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.” – Page 166, Annexure F, Budget Review 2022.
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. 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 government wants to intensify their monitoring of crypto users that use South African exchanges to send crypto assets to an international exchange like Binance etc. This practice is currently used for 2 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 government to protect both the consumer and the South African fiscus. 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.
Protect your crypto assets
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.
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 Key’s 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. Therefore, it is important that crypto owners do their research on companies that want to manage their accounts, and make sure that the company is registered with the FSCA. Another red flag that crypto owners need to be wary of, is when a company offers exponential growth on returns.
“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,” explains Stander.
If you are unsure about how to proceed with your crypto assets, then it is in your best interest to consult specialist tax practitioners and tax attorneys who are experts in cryptocurrency, to obtain correct and expert advice on how to manage your crypto assets.
Written by Thomas Lobban, Legal Manager: Crypto Asset Taxation at Tax Consulting SA; and Ruan Stander, Cryptocurrency Accountant at Tax Consulting SA