South Africa’s $4 billion in crypto scams has regulators scrambling to bring in new regulations within the next three to six months

• South Africa has faced two of the largest crypto scams in the world this year, leading to nearly $4 billion stolen from investors.
• Mirror Trading International made off with $170 million in January, while Africrypt founders allegedly absconded with $3.8 billion in April.
• The country’s regulators are now racing to put in new regulations within the next three to six months — hopefully before another scam hits.

South Africa is now locked in a race against time to bring in new regulations to curb the misuse of cryptocurrencies in the country. So far this year, the country has faced two of the biggest crypto scams in the world, which has wiped off nearly $4 billion of investor wealth.

The authorities are looking to have better controls in place before another scam hits investors. Kuben Naidoo, chief executive officer of South Africa's banking regulator known as the Prudential Authority and deputy governor of the South African central bank, told Bloomberg that these new laws will likely be finalised within the next three to six months.

South Africa plans to regulate the crypto industry in a phased manner

The first move is likely going to be establishing proper know-your-customer (KYC) norms for crypto exchanges and the creation of systems to prevent money laundering, not unlike what South Korea is trying to put in place right now.

The second phase will involve coming out with investor-protection guidelines and rules for managing the risk facing banks.

“Crypto assets will be brought into the South African regulatory purview in a phased and structured manner,” the Intergovernmental Fintech Working Group said in a statement earlier this month. The organisation released a position paper consisting of 25 recommendations and an outline of a possible regulatory framework, which includes the need for better financial literacy for consumers as the retail interest in digital currency grows.

Crypto scams that wiped out $4 billion in South Africa

The first scam unfolded in January when a company called Mirror Trading International — which operated as a “crypto trading club” and promised investors 10% returns — reportedly absconded with $170 million.

However, this scam pales in comparison to the one flagged in April, when the founders of investment platform Africrypt disappeared with $3.8 billion in Bitcoin, after sending investors an email claiming that the platform had been hacked. This is the biggest known crypto heist in the history of the world so far.

Earlier this month, Africrypt’s lawyers told Bloomberg that the founders had terminated their contract as well. “Our mandate to assist the Cajee Brothers has been terminated,” the attorney, John Oosthuizen, said when asked about the Raees and Ameer Cajee’s whereabouts.

South African authorities are feeling the pressure

The Financial Services Conduct Authority (FSCA) is looking to categorise cryptocurrencies as financial products, which would put them under the regulatory body’s purview.

While money was lost, the FSCA found itself in a conundrum with respect to the investigation. “At this stage we have only found evidence of crypto asset transactions. Currently crypto assets are not regulated in terms of any financial sector law in South Africa and consequently the FSCA is not in a position to take any regulatory action,” the FSCA said in a statement on June 24.

The authority also warned the public of the ‘high-risk nature of investing in crypto assets’ and said it had concerns about the suitability of crypto assets as an asset class because of the ‘underlying business models’ of crypto firms and the ‘risk of large fluctuations in the market price’.

Simply put, the FSCA would have its hands tied if another crypto exchange decided to pull the rug out from under investors. However, if cryptocurrencies were classified as financial assets, then the FSCA would be able to investigate them as such.


The clock is now ticking for South African crypto players as the government mulls over new regulations to bridge the gap.

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