South Africa could end up losing many of the fast-rising digital currency startups due to the lack of regulatory clarity. A number of high-profile startups are threatening to relocate to other digital currency havens if the government doesn’t step in and formulate enabling policies.
South Africa has been Africa’s leader in digital currency startups. It’s home to Centbee, one of the leading Bitcoin SV wallets and remittance services. However, as with many other countries in the continent, it has yet to regulate the sector. The Financial Sector Conduct Authority has called out a number of scams, but has yet to issue any regulations. The South African Reserve Bank, on its part, has expressed its plan to formulate regulations but has yet to move ahead.
This laxity is already costing the country some of its fast-growing digital currency startups. One of these is Revix, a Cape Town-based exchange which is relocating to the U.K. Speaking to Bloomberg, Revix CEO Sean Sanders revealed that his firm is losing out on opportunities due to the regulatory ambiguity.
“South African authorities have been incredibly slow in terms of regulation in the industry and that leads to businesses looking internationally. In an unregulated environment, a customer arrives at our platform with skepticism, and rightfully so,” he stated.
South African regulators have been on the spotlight in the past year after one of the largest scams in the industry scammed over 23,000 investors. Mirror Trading International was based in South Africa, targeting investors locally and in many other countries globally. The CEO is said to have fled to Brazil after regulators cracked down on his scam.
These scams thrive because of the lax regulations, Earle Loxton, the CEO of Digital Currency Index believes. He told Bloomberg, “South Africa has a sad history of pyramid and Ponzi schemes and crypto was the obvious new format for this. Honest operators welcome regulation as it makes it possible for their clients to invest with confidence, especially at institutional level.”
Aside from difficulty in attracting clients, the lack of regulations is also denying digital currency startups banking services. Many banks are cautious when dealing with the industry, fearing the government might decide to crack down on them. In Nigeria, this has happened, with the central bank prohibiting banks from processing digital currency-related transactions.
The largest bank in South Africa, Standard Bank Group, has been offering all banking services to digital currency companies. However, the third largest, FirstRand Bank, doesn’t have any relationship with the industry.
Regulators must keep up with the industry or risk having South Africa trail other tech hubs such as Nigeria and Kenya, Sanders believes. “South Africa seems to go in the opposite direction of some of the more developed market pioneers and innovators in this space. For regulators to apply hundred-year-old securities regulations to the novel cryptocurrency asset class seems lazy,” he said.
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