Crypto assets: Next steps as South Africa prepares for regulation of Bitcoin, other currencies – FSCA exec

South Africa is preparing to regulate cryptocurrencies like Bitcoin. In addition to protecting individuals, the new rules may pave the way for a mushrooming of products with cryptocurrencies as their underlying basket of investments. Brandon Topham, Divisional Executive for Investigations and Enforcement at the regulatory Financial Sector Conduct Authority, set out the details of the proposed legislation – and provides an update on crypto currency-linked Mirror Trading International (MTI), whose boss has disappeared along with investor funds. Jackie Cameron

Brandon Topham on cryptocurrencies:

Bitcoin is one of many crypto assets – cryptocurrencies as the public generally refer to them as. At this stage, we are concerned with the large number of investors who have taken an interest in crypto assets. I think you’re aware that most regulators around the world are not very comfortable – or should we say happy – with a crypto asset, which is something which doesn’t exist anywhere, other than floating on the web. There’s no management, there’s no business behind it. Really, the price is driven purely by sentiment. It has, obviously, the opportunity as a payment mechanism and there are certain advantages to a crypto asset as such.

So we can’t ignore the existence of this. In a perfect world, we probably wouldn’t like it to exist because it would be much easier to protect the public from things going wrong. But unfortunately – from our point of view – we have to accept the fact that it exists and has probably taken the world by storm. For that reason we’ve, from our side, decided to classify it as a financial asset. So in the South African legal framework, that would mean that as a financial asset, we would have the ability to issue regulations around the services and the players involved in the sector. As the law currently stands, there’s nothing preventing you – from the financial sector – from purchasing such a thing.

In South Africa, we have Exchange control rules and regulations that do come [in] to play. As long as people acquire their crypto assets at the moment using the proper banking mechanisms – going through the site from the Reserve Bank processes – it’s fine for people to purchase a crypto asset.

On new regulations surrounding Bitcoin in SA:

South Africans will be encouraged by ourselves to only deal with people that are registered with us when purchasing crypto asset. We will discourage strongly – with warnings – why they should not use a crypto wallet based, for instance, in Cyprus. Because we have got no control over them and we’ve got no assurance that they will honour what they say they’re going to do. Nothing will really change, because a South African that wants to open up a wallet using an offshore location will still be able to do it. It won’t be unlawful – just as it’s not unlawful at the moment – but they will definitely have no security that the players they are dealing with are of a reputable nature.

But I must also stress that, even in the regulated sphere, often things go wrong. There are man cases where people that are registered as fund managers either lose the plot or sometimes decide to steal your money. So it’s never a 100% guarantee that dealing with registered financial service providers will make sure your money is looked after – but it’s one step closer to it.

On whether regulations may pave the way for inclusion of cryptocurrencies in pension funds and unit trusts:

Personally, I hope not. Because I would hate to think that my pension has too much exposure to a crypto. But I have no doubt that there already have been requests from pension fund managers and collective investment schemes to get more involved with crypto’s in their portfolios. There’s no doubt that there are going to be some concessions given. But that’s speculation on my part, at this point in time. There’s no formal decision or discussion on the matter.

On Mirror Trading International:

There’s quite a big case going on at the moment. Mirror Trading International. A big part of it is that the wallets – we know there’s money – but we don’t know who owns these wallets. That’s going to be a big job for liquidators to unravel in the future. By us regulating it, it will make it easier when things go wrong in the future, to figure out what went wrong and where the money is.

On whether we will see bigger listed companies entering this field:

I haven’t seen anything yet. I think most things will probably come through now towards the end of January, and in typical human nature, we leave it to the last moment before we finalise submissions etc. So I’m sure that the various larger players are consulting and there are more meetings happening – and further meetings. At the last minute rush, the documents will be submitted. That’s how it normally works out.

On developments in the Mirror Trading International case:

We opened up a case against the company in November. The investigating officer is involved in it and we’ve had meetings with them, as well as with the prosecuting authorities. In the end, it’s up to them to do it. Unfortunately – and I do use the word unfortunate – we have no criminal prosecution authority in South Africa. So as soon as we see criminal activity, all I can do is hand it over to the police. We carry on giving support and over the years, you’ll see many cases where matters we’ve investigated – we continue giving the police and prosecutors support and they eventually do end up in a successful prosecution. But I don’t think you’re going to see much arrests in Mirror [Trading International] for some time. Of course, suspect number one – at this point in time – is missing. You can’t arrest someone who isn’t around.

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