National Treasury received thousands of comments on the Draft Capital Flow Management Regulations. (Image source: 123RF)
South Africa’s crypto industry has welcomed finance minister Enoch Godongwana’s decision to reconsider proposed cross-border crypto regulations, saying a shift away from prior approval requirements could help protect local businesses, competition and innovation.
The responses follow Godongwana’s announcement during yesterday’s Medium-Term Budget Policy Statement (MTBPS) that a “different approach” is needed after National Treasury received thousands of comments on the Draft Capital Flow Management Regulations.
The proposed regulations, published in April, seek to overhaul South Africa’s exchange control framework by moving away from a pre-approval model towards a risk-based system focused on reporting, monitoring high-impact and high-risk cross-border transactions, and combating illicit financial flows.
The draft framework also addresses the cross-border treatment of crypto assets, with a separate Draft Crypto Assets Manual for Cross-Border Activities published in August setting out how such transactions would be permitted, reported and supervised.
Godongwana indicated the authorities would reconsider the proposals, with consultations expected to inform a revised second draft for further public input.
Dr Wiehann Olivier, partner and global co-head of digital assets at Forvis Mazars, says the decision offers relief to the local digital assets sector, which had raised concerns about the potential impact of the proposed rules on legitimate transactions and business activity.
“The concern was never the need for regulation. It was whether the proposed solution would achieve its objectives without undermining legitimate activity and innovation,” he says.
Olivier argues that the initial proposals risked discouraging the use of licensed South African providers and pushing crypto activity offshore or outside the regulated system.
One of the concerns involved self-custody, where individuals hold crypto assets in their own wallets rather than through an exchange.
Finance minister Enoch Godongwana.
Under the proposed framework, transfers from an authorised South African provider to an individual’s own wallet would have been permitted subject to limits and reporting requirements, while transfers back to an authorised domestic provider would not have been allowed.
Olivier notes that this approach risked restricting legitimate activity and undermining the role of local service providers.
“The revised framework should focus on the economic activity and its risks, rather than the technology through which it takes place,” he adds.
“A lawful payment or investment should not automatically be treated more restrictively simply because blockchain technology is involved.”
He also highlights the potential role of stablecoins in international payments, remittances, settlement and digital commerce, arguing that rand-denominated stablecoins could help the local currency participate in emerging digital financial networks.
“If South African businesses cannot interact efficiently with international platforms and new financial infrastructure, the global market will not wait.
“It will continue developing through dollar-, euro- and other currency-backed instruments, potentially leaving the rand increasingly peripheral.”
He adds that the revised framework should align with international standards and apply equivalent regulatory treatment to comparable activities and risks.
“The real breakthrough may therefore not be the decision to rewrite the rules, but the change in regulatory philosophy,” Olivier notes.
Frank Leonette, founder of crypto exchange Afridax, also welcomes the minister’s decision to revisit the proposals, saying regulation should protect consumers and ensure compliance without making it difficult for the industry to grow.
“Licensed crypto exchanges already operate under strict compliance requirements. Excessive cross-border administrative requirements could make it financially unviable for smaller CASPs to operate, reducing competition and limiting consumer choice,” he says.
Leonette warns that onerous requirements could push crypto holders towards offshore or unregulated platforms, reducing regulators’ visibility over transactions.
“We should be encouraging people to use regulated South African platforms, where transactions can be monitored and businesses can be held accountable.”
He adds that transfers between regulated exchanges and self-managed business and personal wallets could be subject to appropriate reporting requirements without discouraging legitimate self-custody.
“The focus should be on transparency, proper reporting and managing risk, rather than restricting legitimate businesses or disincentivising crypto holders from managing their own assets.”
Leonette says Afridax is prepared to engage with industry stakeholders and regulators to help develop a framework that supports responsible growth.
David Porter, general manager of AltCoinTrader, says the minister’s acknowledgment that South Africa needs a revised approach demonstrates that Treasury was listening to concerns about the practical implications of the proposals.
“The concerns raised across the industry made it clear that the initial draft risked isolating South Africa from global markets and driving legitimate innovation and capital offshore,” he comments.
Porter calls for technology-neutral rules that address tax compliance and illicit financial flows without cutting local businesses and consumers off from international financial systems.
“Regulation must be technology-neutral: same activity, same risk, same rules.”
He adds that structured engagement with established industry bodies, including the Crypto Asset Association of South Africa, would be important in developing workable rules.
AltCoinTrader says it looks forward to participating in the consultations.