The High Court has ruled that South Africa’s 64-year-old exchange control regulations are outdated and in urgent need of reform to accommodate trade of crypto-currencies and forms of digital assets.
In a judgement handed down in the North Gauteng High Court, Judge Mandlenkosi Motha ruled that the Exchange Control Regulations, introduced in 1961, cannot be applied to crypto-currencies.
In his judgement, he wrote “a regulatory framework addressing crypto-currency is long overdue”. He noted there is a clear lack of regulation of digital assets, despite their existence since 2009.
Luno, a South African-founded digital asset platform and one of the world’s oldest crypto wallets, has been calling for updated, clear and pragmatic regulations for digital assets such as Bitcoin to help drive investment and economic growth.
According to Luno, the popularity of digital assets continues to grow globally, with Bitcoin reaching an all-time high of over R2 million last week.
Increasingly, it adds, institutional investors around the world are incorporating digital assets into investments. Last year, the first pension fund in the UK allocated 3% of its funds to high-returning crypto-currencies, says the crypto exchange.
The case in front of the High Court involved Standard Bank, against the South African Reserve Bank (SARB) and others, and focused on whether crypto-currencies such as Bitcoin fall within the scope of the existing exchange control regulations.
Judge Motha noted the existing regulations do not permit “an unnatural and fictitious reading” to include crypto-currencies.
He emphasised that in the same way intellectual property rights were incorporated into an outdated exchange control framework, crypto-currencies also now require “legislative attention”.
Exchange control regulations are rules governed by the country's central bank, the SARB, to regulate the flow of money into and out of the country.
The SARB may now be required to update these decades-old regulations to apply specifically to digital assets.
Luno points out that one major regulatory gap is that digital currencies in South Africa are currently not designated as either offshore or onshore assets.
It notes this ambiguity discourages investment by collective investment schemes and pension funds, as offshore assets are subject to stricter exchange control rules, forcing lower levels of investment. Additionally, clearer regulations will assist in reporting and addressing illicit financial flows.
Luno strongly believes that updated legislation – and specifically, the technically correct designation of digital assets as onshore –will allow the digital asset industry to contribute more significantly to economic growth in South Africa.
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