South Africa was preparing to formally embrace crypto. Then two brothers vanished with $3.6 billion.

Just as South African authorities were gearing for a new approach to the trading of bitcoins and other virtual assets in Africa’s most industrialized country, two brothers have been accused of disappearing with $3.6 billion from a top bitcoin site.

If confirmed, Africrypt’s, the platform ran by the Ameer and Raees Cajee, losses would rank among the biggest crypto losses ever. Despite its volatile and high risk nature, losses in the crypto sector through fraud and other crime accounted to a total of $1.9 billion in 2020, down from a record $4.5 billion in 2019, according to Crypto Intelligence.

The concern is that as things stand it may not be the last mega fraud. There has been a surge in trading activity in bitcoins across the continent that prompted authorities in South Africa to introduce new crypto currency trade and investment laws, with its financial and capital markets regulators predicting an increase of crypto activity in the country.

But whether these moves will be put on hold by this recent incident remains unclear. However, what is evident is that central banks across the continent are directing commercial banks to avoid processing transactions involving trade in crypto assets.

This comes as one report puts Nigeria “as the top peer-to-peer bitcoin trading nation on the continent” with $99 million in trade volumes in the first quarter of 2021, while volumes for Kenya and Ghana – in second and third ranking – came in at $34.8 million and $27.4 million respectively. South Africa was fourth with $25.8 million.

Without regulations, last week incident that resulted in the loss of 69,000 bitcoins from Africrypt could reoccur. As South African special police unit Hawks conducts an extensive search for the two brothers, Attorney Gerhard Botha, who’s working on the firm’s liquidation case, said some of his clients last made contact with the brothers in May, and he was able to reach them before court proceedings kicked off in Johannesburg. But no “proactive response” was forthcoming from them, Mr Botha said.

South Africa’s main motivation to regulate virtual assets appears to be stimulated by the rapid rise in crypto trade and fraud cases where ransom is demanded in crypto currency.

Daily crypto asset trading values in South Africa were “exceeding $145 million for the first time” in January 2021, according to a report from the working group behind the regulatory framework. The new regulations are aimed at fostering transparency and minimizing the abuse of crypto currencies for nefarious activities.

To guard against money laundering and the financing of terrorism, the new regulations will address customer identification and verification, customer due diligence, keeping records of client and transactional information, and monitoring of suspicious and unusual activity. Additionally, the South African Reserve Bank will also closely monitor crypto assets and service providers for “cross-border financial flows.”

However, the new regulatory framework obliges authorities to continue limiting the exposure of banks and other financial institutions to crypto assets due to what authorities say “the risk could over time spill over and create financial risks.”

In countries such as Zimbabwe, Ghana and Kenya where financial regulators have already banned banks from processing transactions relating to crypto currencies, mobile money and other digital payment means for settlement of crypto currency transactions have gained popularity. The major challenge will lie on how to control such systems.

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