South Africa To Establish Self-Regulatory Unit To Oversee Crypto Industry

Pratik Makadiya
  • South Africa is set to establish a self-regulatory unit to oversee the cryptocurrency industry
  • The country expets its taxpayers to declare cryptocurrency earnings, despite cryptos not being legal tender.

South Africa´s central bank, the South African Reserve Bank (SARB), is instituting an independent self-regulatory investigative unit - nicknamed Project Khoka – to oversee the crypto space.

The new non-state agency will be authorized to set up new laws and industry standards. The SARB opted for a self-regulatory approach to ensure that the crypto industry advances while keeping risks at a minimum

Bridget King, Director of Banking Practice at the central bank, told Finextra

“Regulating cryptocurrencies prematurely could have the negative consequence of throttling the growth and innovation of the industry”

Bridget King

According to King, cryptocurrencies cannot be regulated under the same class as traditional banking services. Therefore, the newly formed self-regulatory unit is set to develop new regulations for the crypto space.

 Moreover, per King, the crypto space is in its emerging phase and will undoubtedly advance. Hence, regulations will only need to be updated as the industry progresses.

“In addition, if laws are drafted based on existing technology, which is still in its growth phase, there is a risk that the technology may have moved so much by the time the legislation is enacted, that the legislation is obsolete or requires updating almost immediately to align with the latest technology”

Bridget King

South Africa To Tax Crypto Gains

Project Khoka’s primary task will be to analyze the use of blockchain technology in electronic payments. Earlier this year, SARB formed a fintech task force that would confront regulatory subjects such as monetary policy and financial stability. Project Khoka is a spin-off of that fintech task force.

Cryptocurrencies gained extensive popularity in South Africa last year. According to CryptoCompare data, the South African Rand makes up for roughly 0.01% of Bitcoin’s trading volume, as about 444 bitcoin were traded against the fiat currency in the last 24-hour period.

Recently, South Africa’s tax authority, the South African Revenue Service (SARS), revealed it expects taxpayers to declare cryptocurrency gains, although cryptos aren’t legal tender in the country.

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UK Regulators Approve Their First Crypto Hedge Fund

  • Prime Factor Capital Ltd. becomes first crypto hedge fund to gain FCA approval.
  • Fund reports 147 percent YTD return as bitcoin's price continues to rise. 

London-based Prime Factor Capital Ltd. has just become the first cryptocurrency hedge fund to gain approval by UK regulators. 

FCA Approves Their First Crypto Hedge Fund

According to a report published by Bloomberg, Prime Factor Capital has received approval from the Financial Conduct Authority (FCA) to manage alternative investment funds which will focus on cryptoassets.

The hedge fund was originally established by former employees of BlackRock Inc. and RWE AG, bringing a substantial amount of experience to the table for the relatively new management group.

On July 1, the fund issued a statement informing clients it will be regulated as any other alternative investment hedge fund under European Union rules. According to the release, Prime Factor Capital is now able to manage more than $100 million euros in assets and can broaden their offering to institutional investors. 

Regulators have been slow to grant approval to cryptocurrency-related funds. While cryptoassets command a market capitalization of more than $300 billion, they have also exhibited massive volatility relative to traditional markets. Crypto and the exchanges that fuel the industry have thus far managed to operate in unregulated waters, which has led to the abundance of hacks and other shady dealings. 

Cryptoassets on the Rise

However, Prime Factor’s chief operating officer (CEO) and former BlackRock investor Adam Grimsley believes the FCA is being proactive in its decision. As cryptoassets gain popularity with retail and institutional investors, the need for some form of market oversight has increased. 

Grimsley told Bloomberg, 

“Most vehicles for investing in cryptocurrencies are outside the scope of regulators and that’s a big problem in a market that has such a bad reputation,”

As the first cryptocurrency hedge fund to gain approval by the UK’s regulatory watchdog, Prime Factor is now beholden to a set of requirements to remain in compliance. The management group will have to appoint an independent depository for oversight, cash flow reconciliation and safekeeping of assets.

In return, Grimsley says clients receive “assurance” on the fund’s returns and that the value of assets under management is consistent with what is being reported. 

Prime Factor Capital Crypto Hedge Fund Market PerformancePrime Factor 10 hedge fund performance | Source: Prime Factor Capital

According to the market performance indicator on their website, the Prime Factor 10 fund has generated a 147 percent Year-To-Date (YTD) return, closely tracking the rise of bitcoin.