National Treasury’s latest attempt to regulate crypto is based on a fundamental misunderstanding of blockchain technology.
So say industry players after the department published a draft manual governing cross-border crypto transactions.
The draft manual sets out the rules licensed crypto asset service providers (CASPs) would have to follow when handling cross-border crypto transactions, including when transactions are permitted, the conditions attached to them, and what must be reported to the South African Reserve Bank’s (SARB’s) Financial Surveillance Department (FinSurv).
It has been published for public comment alongside the proposed Capital Flow Management Regulations that seek to bring crypto under SA’s forex regime.
Desiree Reddy, director at Deneys Attorneys, describes the publication of the manual as a positive step because it provides industry with greater clarity on how the proposed regulations could be implemented.
Old rules, new money
Yet, David Porter, compliance director at AltCoinTrader, argues that the draft attempts to apply traditional exchange-control concepts to technology that does not recognise borders.
“The fundamental blind spot stems from attempting to apply traditional, geography-based exchange control mechanisms to a borderless, distributed technology. Blockchains do not move assets across physical boundaries; they update a globally distributed ledger via cryptographic keys.”
Porter adds: “By treating crypto assets through the lens of traditional foreign exchange capital export controls, imposing pre-trade constraints, mandating forced-asset sales, and prohibiting South African corporate entities from using crypto for cross-border capital flows, the regulations risk suffocating domestic innovation.”
Government is trying to force a modern technology into an outdated regulatory model, adds Farzam Ehsani, CEO of VALR.
“South Africa would be better served by abolishing exchange controls altogether while preserving appropriate reporting, transparency and regulatory surveillance, rather than attempting to retrofit a half-century-old regulatory regime onto modern technology and the digital economy,” he says.
SA’s forex regime dates back to 1933, with the current regulations in place since 1961.
Even if exchange controls remain, Ehsani says they should be applied in a technology-neutral way.
“If South Africa chooses to retain capital controls, it should at least apply them on a principled, fair and technology-neutral basis. Regulation should govern the movement of value and manage the associated risks; it should not dictate which technologies individuals and businesses can use,” says Ehsani.
With prejudice
Ehsani warns that the current draft was prejudicial to crypto assets and licensed CASPs “and risks severely damaging South Africa’s crypto industry” even as digital assets offer faster, cheaper and more transparent cross-border payments.
Marius Reitz, general manager for Africa and Europe at Luno, adds that stablecoins enable instant low-cost cross-border business-to-business payments and are one of the biggest use cases for crypto-currencies, in a global industry with annual transaction volumes estimated at $33 trillion.
“We face a fundamental choice in South Africa: whether we are serious about overcoming our economic challenges, unlocking growth and becoming a globally competitive force, or whether our frameworks undermine those ambitions,” says Ehsani.
While Reitz welcomes the decision to treat crypto assets bought and held on a South African licensed CASP as onshore assets, he says the draft manual effectively prohibits companies from making cross-border payments using crypto-currencies.
“In practice, this restricts South African companies from using stablecoins − crypto-currencies usually pegged to a fiat currency − for any form of cross-border commercial transactions, supply chain payments, or international trade,” says Reitz.
“Failing to accommodate corporate cross-border stablecoin payments leaves South African businesses out of step with an international ecosystem embracing next-generation payment rails,” says Reitz.
Cart before horse
Government has published the draft manual for comments until the end of September before finalising the Capital Flow Management Regulations, which seek to bring crypto under the ambit of foreign exchange regulations.
Reddy says the fact that the manual had been published before the regulations were finalised created uncertainty, a situation that National Treasury has also acknowledged.
“National Treasury and SARB wish to emphasise that comments received on the draft regulations during the public consultation process are currently being considered,” National Treasury says in a statement.
The department adds that, because of the timing of its release, the draft manual does not yet consider the comments already submitted on the draft regulations. “The draft regulations and draft manual remain subject to refinement following the consideration of all public comments and stakeholder engagements,” it says.
Reddy adds: “This manual imposes a whole new licensing regime. It imposes reporting requirements that will require a technology build-out for these entities that apply for the licence.
“But you don’t yet know exactly what the detail is, what the specifications are, what the reporting requirements are going to be. So, it’s, ‘you must do this and I’ll tell you what needs to be in it, but just not now,’ which is problematic.”
Regulators are developing implementation rules before the underlying regulatory framework has been approved, says Gareth Grobler, co-founder of the BitcoinZAR Advocacy Group.
“The issue we have with the draft manual is that the government are proposing to build a car and have created the design and now they are busy writing a manual on how the car operates without it being in production,” which is a complete waste of taxpayers’ money.
By drafting the manual before the underlying regulations are finalised, government is spending taxpayers’ money on rules that may have to change, while creating uncertainty and undermining the public consultation process, says Grobler.
Treasury’s wish list
In April, National Treasury proposed new foreign exchange rules governing the use and cross-border movement of crypto assets, including how South Africans buy, sell, lend and transfer digital currencies.
The Draft Capital Flow Management Regulations 2026, for which comments closed at the end of June, would replace SA’s long-standing pre-approval exchange control regime with a risk-based system focused on reporting, monitoring high-impact and high-risk cross-border transactions and combating illicit financial flows. Breaches could result in fines of up to R1 million, imprisonment of up to five years, or both.
The manual, National Treasury says, now forms part of a “broader effort to strengthen the oversight of cross-border financial activities and to address emerging risks associated with crypto assets”.
The department adds that these measures will complement the existing regulatory oversight of crypto asset activities by the Financial Sector Conduct Authority, Financial Intelligence Centre and South African Revenue Service.
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