South Africa needs a clear policy on investing in cryptocurrencies

South African investors have had their fair share of “safe bet” investment opportunities that turn into huge financial disasters.

From the failures of Saambou Bank in 2002, African Bank in 2014, and VBS Mutual Bank in 2018, to shenanigans which were brought to light at Steinhoff in 2017 and Tongaat Hulett in 2020, huge losses have been recorded.

The implosions of other formerly stellar local and international firms due to their own shady practices or links to the crooks who have robbed the state, did not necessarily result in investor losses within the country.

None of this may comfort the more than 1,000 investors in the East London-based Rawlins Trust, who are trying to figure out what happened to their combined R308m deposit into the trust’s bank accounts.

It is essential to reflect on mistakes, if only to try to avoid their recurrence.

Our banks are among the country’s most regulated sectors, yet repeatedly bank collapses have been among the biggest investment failures in recent years, causing hardship for investors and depositors, and forcing the SA Reserve Bank to place such institutions under curatorship, if only as a self-preservation measure for the rest of the industry.

Every business failure due to corruption or mismanagement directly and immediately affects honest employees and clients, and taxpayers in the long term through costs which the state may be forced to incur.

However, many more people may be attracted to and affected by investment schemes outside the purview of the banking regulator or similar industry watchdog, such as cryptocurrency.

The underlying reasons behind bank and other business collapses most often are corporate governance shortcomings which have led to predatory policies and illiquid positions that placed investor and client interests at risk. And theft.

There are no laws governing the use of cryptocurrencies in South Africa, no legal protection or recourse for anyone, and the risk is solely that of the user or investor. Investors may still follow legal paths — like sequestration, as is being pursued in the Rawlins matter, or claims for damages against operators — to recover their money.

South Africa’s financial regulators must finalise a policy on cryptocurrency to bring these investment schemes and exchanges into the open and to provide even a modicum of safety to those who want to invest in the virtual currency.

Investors may also need to take responsibility for how they assess the merits of placing their money in a volatile — and, therefore, high-risk — investment scheme, without having clear safeguards in place.