South Africa to revise sections of proposed crypto exchange control framework
Ifeoluwa Awowoye / Mariblock
The Shift
South Africa, most advanced among African jurisdictions in making crypto laws, saw a gap that could be exploited to circumvent exchange control rules. In an attempt to plug that gap, authorities bit down a little too hard but now seek to correct this.
South Africa's minister of finance Enoch Godongwana has said that South African regulators will begin new consultations towards reviewing and revising some provisions in its proposed exchange control framework for cryptocurrencies.
Catch up quick: The South African Reserve Bank (SARB) and the National Treasury had published the draft Capital Flow Management Regulations on April 17 and a draft manual governing crypto cross‑border activities on Aug. 3.
- Chief among the provisions of these documents was a restriction on South African businesses from transferring crypto from a local exchange to an offshore one.
- While individuals would be allowed to transfer their crypto offshore subject to regulatory requirements, movement in the opposite direction and self-custody of assets would be outlawed.
- In addition, the rules provided regulators with legal grounds to force individuals who owned crypto above stated thresholds to sell off their holdings to the government.
- The rules drew widespread criticism and saw several crypto firms in South Africa join forces to form a coalition in opposition to the draft regulations.
Driving the news: In his medium-term budget policy statement delivered on Oct. 21, Godongwana said SARB and the National Treasury need to alter the design of the crypto exchange controls framework.
- According to him, regulators received thousands of written comments following the release of the policy documents to the public.
- Godongwana added that these comments proved that both agencies needed to change elements of the rulebook and align more with global standards set by the Financial Stability Board.
- SARB and the National Treasury will now go back to the drawing board to work on amendments and publish a second draft subsequently, Godongwana concluded.
Why this matters: Godongwana asked regulators to shift from "pre-approvals" and should rather "assess transactions for legitimacy and tax compliance."
- This can mean a call for regulatory agencies to regulate legitimate crossborder crypto transfers made by businesses, rather than simply categorizing all such actions as illegal exports of capital or attempts to circumvent exchange control rules.
What to watch: It remains to be seen if the amendments will extend to the restrictions on self-custody of crypto assets.
- In addition, it is unclear if the authorities will extend the amendments to repeal provisions allowing for the forceful sale of individual crypto assets, provisions central to the significant pushback against the proposed rules.