South Africa tightens controls on cryptocurrencies

Written by Ziad Abdel Fattah:

South Africa has taken a new step towards regulating the cryptocurrency market, after issuing Ministry of the National Treasury The South African Reserve Bank has drafted guidelines that, for the first time, outline a mechanism for regulating and reporting cross-border digital asset transfers.

The “Crypto Assets Guide” project comes as part of a broader plan to reform capital flow rules, which was announced by the authorities last April, in order to strengthen oversight of money movement and keep pace with the rapid expansion in the use of digital currencies within the country.

growth of the crypto assets sector

South Africa is witnessing remarkable growth in the crypto asset sector, with hundreds of officially licensed virtual asset service providers, according to data from blockchain analytics firm Chainalysis, while major banks continue to develop digital currency-related services and products for their institutional clients.

Under the proposed rules, sending cryptocurrencies abroad would only be permitted through authorized service providers, and such transfers would have to be reported to the South African Reserve Bank’s Financial Supervision Department (FinSurv), in a move aimed at enhancing transparency and oversight of cross-border transactions.

Monitoring and combating illicit flows

The new measures aim to prevent the use of cryptocurrencies as a means of circumventing exchange controls and capital flows, in addition to supporting the authorities' efforts to monitor and combat illicit financial flows.

The draft stipulates that cryptocurrency transactions are considered cross-border only if the assets are transferred from a licensed local service provider to a foreign service provider or to a private, non-custodial digital wallet. Purchases or sales of cryptocurrencies in the local currency (the Rand) through local providers will not be subject to reporting requirements.

The South African Reserve Bank also clarified that the new regulatory framework does not grant cryptocurrencies the status of legal tender, and does not currently differentiate between different types of digital assets, noting that studies related to this matter are still ongoing.

The authorities have given the relevant parties until September 30 to submit their comments on the draft rules, in preparation for approving the final version of the regulatory framework.