South African authorities are likely to be more aware of the cryptocurrency area in 2021 following the introduction of the large Bitcoin (BTC) scheme and increased trading activity. As a result, South Africa’s financial sector regulators have called for stricter control over the cryptocurrency area following the collapse of what has been announced by the largest Ponzi scheme the country has ever seen.
In December 2020, Mirror Trading International was temporarily discontinued after one of the leaders allegedly walked around the country, taking with him access to the huge amount of bitcoins that investors have entrusted to the company in recent years. In January 2021, MTI announced that it had over 260,000 members worldwide and collected 23,000 BTC from investor investments, which are worth $ 1 billion in today’s market.
It is assumed that the South African business unit trades in high-frequency derivatives using robots, but investors were left empty at the end of 2020 when CEO Johan Steinberg left the country. Other company directors claim that Steinberg was the only one who directly controlled all of MTI’s bitcoin holdings and believes that the CEO fled to Brazil.
The FSCA warned South African investors not to invest in MTI in August last year after confirming that the company operated without a license for financial service providers. The supervisory authority was also concerned that the company contributed to an unusually high return on customers. This came just after Texas regulators in the US shut down MTI promoters in July last year.
While the MTI collapse led to demands for clear regulations for the use of cryptocurrencies in the country, the cryptocurrency markets also contributed to increasing trade in the country, which resulted in more interest from the South African tax authorities.
Correct encryption warning
In early February 2021, the FSCA sent a message to the public that they had received a number of complaints from South African investors who were left out of pocket in connection with unnamed “cryptocurrency investments” or “cryptocurrency investment scams” that promised high returns, which is understood under MTI.
The supervisory authority indicated in the letter that cryptocurrency investments are not regulated by the FSCA or any other authority in South Africa, and leaves the risk that investors will not take refuge in the worst case.
Brandon Tobham, CEO of FSCA South Africa Enforcement, discussed with the Cointelegraph how FSCA is involved in the MTI investigation. FSCA now works directly with MTI liquidators and has also shared information on all MTI investors with the South African Revenue Service. Topham told the Cointelegraph that the use of cryptocurrency is necessary for MTI criminals to defraud investors:
“The significance of MTI is that they first used cryptocurrency as a basis for claiming that the alleged investment business they ran did not fall under our jurisdiction because the method of payment was cryptocurrency. Later, when they stopped trading currencies due to our investigation, they stated that they traded cryptocurrencies. And since the cryptocurrency has an excellent reputation for making big profits, it was easier for victims to believe that the high profits were real.
Tobham added that this situation is not a reflection of a misunderstanding by South African cryptocurrency investors, but that people were “desperate and / or greedy” and continued to invest in MTI after the FSCA warned against doing so in mid-2020.
The MTI disaster has highlighted regulation in the country. Topham told the Cointelegraph that there is still no regulation in space, but the FSCA started the process of declaring cryptocurrencies as financial products in November 2020, which was open for public comment until the end of January 2020. According to him:
“Once this change is implemented, it will require consultants and crypto service providers to register with the FSCA. This does not mean that crypto is regulated, or that it is extremely important that we approve the existence of cryptocurrencies, but rather it will only be a mechanism to ensure that South African citizens who choose to participate are notified. Transactions with cryptocurrencies are correct and fraudsters do not handle them. ”
Tobham acknowledged that even registered financial service providers “sometimes become scammers”, but insists that this structure will be the first step in protecting the population from abuse in the region. He added that it is difficult to organize something that “does not have an address, business or management in general.” It is for this reason, he said, that regulators are urging investors to stay away from cryptocurrencies.