FSCA’s second warning about crypto-currencies
THE FINANCIAL Sector Conduct Authority (FSCA) yesterday issued a second warning to consumers to be “extremely cautious and vigilant” in trading in crypto-currencies, even as the price of Bitcoin and other digital currencies continues to rise to stratospheric levels.
The FSCA said it had seen “with concern the increasing volume of crypto-assets-related losses suffered by financial consumers in the past three months”.
The institution published its first warning about the risky nature of crypto assets three weeks ago, following a large number of complaints to the FSCA and regular media reports of consumers losing some if not all of their savings in high-risk crypto investments.
Crypto assets, which are stored on a blockchain and not issued by a central bank, are traded, transferred and stored electronically. They have been used for payments, investments and capital-raising.
The price of a Bitcoin has risen more than ten-fold, from $5 300 (currently about R78 614) at the height of the Covid-19 crisis to more than $60 000 last weekend, driven largely by institutional demand globally. Yesterday, it was trading at $57 766.70 per Bitcoin.
The regulatory outlook for investors, however, is uncertain and tightening. Reuters reported that India, for instance, plans to prohibit the possession, issuance, mining, trading and transferring of crypto-assets, while in South Africa, the South African Revenue Service (Sars) has said it was improving its technology to be able to better tax crypto-currency trading.
The biggest crypto-currency scam globally and in South Africa last year was Stellenbosch-based Mirror Trading International (MTI), which is facing legal action and whose chief executive has disappeared. According to reports, MTI allegedly solicited $588 million of Bitcoin across 47 000 transactions from thousands of local and international investors.
In November, the FSCA, as part of an Intergovernmental Fintech Working Group, published a position paper declaring crypto assets a financial product under the Financial Advisory and Intermediary Services Act, and included recommendations about further regulation.
“Crypto-related investments are not regulated … in South Africa. As a result, if something goes wrong, you are not likely to get your money back and will have no recourse against anyone,” the FSCA said.
The high risks already inherent in crypto assets were being compounded by scam activity, as well as unregulated firms targeting consumers with marketing material that highlighted the rewards, but not the potential downsides, of investing in crypto assets.
The FSCA said it was working on measures to regulate certain aspects and players in the crypto asset space, and these would be rolled out during the coming months.
“Retirement fund trustees must also remain vigilant in their fiduciary duties before mandating investment managers to expose their fund assets to risks associated with crypto assets,” the FSCA said, adding that it “discourages such investments by retirement funds until regulation has been finalised to safeguard investors.”
Tax Consulting South Africa cross-border taxation legal manager Thomas Lobban said earlier this month that although many South Africans had made investments into cryptocurrency, and regulators worldwide had been sluggish to respond, crypto currencies were now firmly on the tax radar for revenue authorities world-wide, and at Sars.
“Contrary to what many traders and investors believe, cryptocurrency can be tracked and traced with the correct expertise and resources,” he said.
In audit letters that were recently sent to taxpayers enquiring about their cryptocurrency-related holdings and activities, Sars Commissioner Edward Kieswetter had stated following the 2021 Budget speech that “(u)ndisclosed offshore assets, including crypto-assets such as Bitcoin, will be a big area of focus”.