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01-07-2021 | World

After a $3.8 billion scam, the South African regulator will declare digital currencies as financial products.

The South African financial authority is attempting to bring the digital currency business under its jurisdiction after one of the greatest scams in the industry. Digital currencies are being classified as a financial product by the Financial Services Conduct Authority. This would give it control over the industry and enable it to safeguard investors who are becoming increasingly exposed.

In the last year, South Africa has witnessed two of the largest digital currency frauds. The first was Mirror Trading International, which reportedly made over $170 million in profits. The most recent one is by far the biggest. As CoinGeek reported, Africrypt allegedly made off with $3.8 billion, making it one of the biggest digital currency scams ever.

The Financial Services Conduct Authority wants to get more involved in the industry because investors are becoming a target for scammers. The FSCA is considering declaring Bitcoin and other digital currencies as financial products, according to an IOL article. It will be able to monitor the industry and protect investors as a result of this.

As part of its efforts to oversee the business, the regulator is advising investors to avoid get-rich-quick schemes, whether in digital currencies or elsewhere. To entice investors, almost all scammers offer excessively large returns, and this might be a reliable indicator of which investment programmes are likely to be scams.

The public is urged to understand that unrealistically high returns indicate that the investment scheme is likely to be fraudulent, according to the report.

“In addition, no investment should be made without first seeking the advice and assistance of legally authorised financial service providers, who should only sell products from properly licenced financial institutions.”

Because the majority of digital currency scammers are based in foreign countries, the FSCA is finding it nearly impossible to pursue them. In the case of Africrypt, the two brothers who perpetrated the fraud allegedly fled to the United Kingdom, making it difficult to track them down.

“Many of these businesses are not based in South Africa, or have inadequate protection in place to secure the crypto asset being purchased by the general public and kept on behalf of the customer,” it claimed.

Trading in digital currencies has continued to rise in South Africa, with platforms like Luno and Paxful seeing massive growth in the last year. According to IOL, the country's digital currency trading volume hit R2 billion ($140 million) in January of this year. Despite the fact that the sector is growing in size, there are currently no well-defined standards in place to regulate it, allowing scammers to thrive.

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