South African Financial Regulator, FSCA, Puts Out a Crypto Health Warning

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The Financial Sector Conduct Authority (FSCA) of South Africa has put out a cautionary press release on crypto-related investments following a number of complaints on loss of savings in digital assets.

The press release says a number of South African investors have invested in crypto assets they did not understand, or scams packaged as crypto investments promising unrealistic high returns.

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According to the press release:

“Crypto-related investments are not regulated by the FSCA or any other body in South Africa. As a result, if something goes wrong, you’re unlikely to get your money back and will have no recourse against anyone.”

                             – FSCA

In light of this, the FSCA has put out the following alerts to the public:

  • Crypto investment firms may be overstating potential payouts or understating the risks
  • Investing in crypto assets, or investments and lending linked to them, generally involves taking very high risks with investors’ money, which mean that you should be prepared to lose all of your money
  • There is no guarantee that crypto assets could be converted back into cash, putting consumers at the mercy of supply and demand in the market
  • The price of crypto assets is dictated by the underlying mood or sentiment of the general public with no underlying basis for value determination. The prices are driven by the worldwide sentiment which is driven by persons who have an interest in the value of the crypto asset being driven up
  • There is often high price volatility placing even greater financial risk to consumers

To ensure potential investors are safe, the FSCA has provided the following cautions:

  • Regardless of the level of risk which investors are prepared to accept, investors are urged to ensure that crypto assets, if purchased, should only make up a small proportion of their investment portfolio
  • The risk of losing all of the money invested in schemes promising high returns means that prospective investors should, before investing, obtain proper advice regarding the overall suitability of such high-risk product in your investment portfolio and the impact on it should it fail
  • You are urged to invest with open eyes as to the high risks involved, understanding that these type of investments are not appropriate for the vast majority of the South African population and that more appropriate and balanced investment products are available and offered by licensed Financial Service Providers regulated by the FSCA
  • Do not be pressured to go with the flow and do not be afraid of being left out of the “next big thing”
  • There are no safe “quick rich” schemes in the world. When it comes to your retirement, take a prudent and responsible approach and never put a large percentage of your wealth into any investment product. Diversification of risk is the most important principle for long term wealth creation and preservation

FSCA says the inherent risks in crypto assets have also been compounded by scam activity and unregulated firms that only focus on the rewards but not the potential downsides.

As a result of the above, the FSCA says it is working on measures to be rolled out in the coming months to regulate certain aspects and players in the crypto asset space.

South Africa recently came on the limelight following the MTI scandal – the largest bitcon ponzi scheme so far in South Africa – that allegedly resulted in the loss of 23, 000 bitcoins in investor funds.

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Read / Download the press release warning here.

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