South Africa is one of the few African countries to experience a strong adoption of cryptocurrencies illustrated by the significant activity of crypto exchanges on the spot. Besides individuals, local institutional investors are more interested in the ability of crypto assets to serve as a reliable investment vehicle. Pension funds may now be no longer allowed to invest in cryptocurrencies under a new bill. Explanations.
A measure motivated by the increase in scams in the sector
Currently, Regulation 28 of the South African Pension Fund Act allowed a maximum investment of 2.5% of a portfolio in cryptocurrencies. This has therefore led many retirees to invest in this asset class. However, they prefer to deal directly with representatives of the crypto markets rather than consult with financial experts . This habit has unfortunately contributed to exposing them to many scams as pointed out by Eva Crouwel, Head of Global Financial Crime at Luno.
What is a crypto-asset?— Ledger Insights (@LedgerInsights) November 1, 2021
South Africa's government has drafted legislation to ban pension funds from investing in crypto-assets
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As currently drafted it would included tokenized stocks, bonds that use a DLThttps://t.co/azJpZoJEim
She notably explained in a podcast that the elderly are becoming an easy target for cryptocurrency scams among the two million users in South Africa. Faced with this situation, regulators decided to adopt a law to redefine the conditions around the exposure of pension funds to crypto markets . If approved at the next public consultation which ends on November 12, the law will simply prohibit these funds from investing in crypto assets in any way.
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The lack of tax compliance around cryptocurrencies in the country
In September, South Africa adopted a special framework to allow citizens to report digital assets they held for tax purposes. However, this turned out to be non-compliant with cryptocurrencies, something that can become problematic when investing. Head of Cryptocurrency Taxation at Crypto Tax Consulting, Thomas Lobban said: ” Non-compliance is always proving to be a problem in the crypto space for South Africans .” Coupled with the increase in scams, the lack of tax compliance has therefore prompted regulators to end pension fund investments in cryptocurrencies.
While the proposed law is seen as a step backwards in the adoption of cryptocurrencies, it would primarily aim to protect local investors. In the United States, on the other hand, pension funds keep increasing their exposure to cryptocurrencies without encountering resistance from regulators. Most recently, the Houston Firefighters’ Relief and Retirement Fund decided to invest $ 25 million , or 0.6% of its portfolio, in bitcoin and ethereum.