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Exchange control restrictions ease, but regulatory net tightens around crypto

The government intends introducing several amendments to legislation that will affect exchange control in general and crypto assets in particular.

The 2022 Budget Review set out the following proposals that will ease the exchange control restrictions for individuals:

  • Permitting, subject to the single discretionary allowance and/or foreign capital allowance, the export of dual-listed securities to a recognised foreign securities exchange. The South African Reserve Bank’s Financial Surveillance Department will have to be notified, and all tax and anti‐money‐laundering requirements will apply.
  • Allowing residents to use their discretionary allowance to participate in online foreign exchange trading. However, they will not be allowed to use credit or debit cards to do so.
  • Allowing residents to receive and retain gifts from non-residents offshore (no repatriation required).
  • Allowing residents to lend or dispose of authorised foreign assets held offshore to other residents, subject to local tax disclosure and compliance. However, this dispensation will not apply retrospectively and any contravention before the date on which it takes effect will still have to be regularised.
  • Permitting residents to transfer, for foreign investment purposes, more than R10 million a year through offshore trusts (subject to tax and reporting requirements).
  • Permitting authorised dealers, on a once-off basis, to remit abroad the remaining cash balances of up to R100 000 of people who have ceased to be residents for tax purposes, without reference to the South African Revenue Service.

Regulatory net to tighten around crypto assets

In June last year, the Intergovernmental Fintech Working Group (IFWG) published a position paper on crypto assets, setting out a co-ordinated and phased approach to regulating crypto assets.

The Budget Review says the regulatory authorities are developing “several interventions” based on the recommendations in this paper, including:

  • Making crypto asset service providers accountable institutions in terms of the Financial Intelligence Centre Act. This change will address concerns around money laundering and terrorism financing through crypto assets and align the Act to the standards for virtual assets and related service providers set by the Financial Action Task Force. The proposed amendments to the Act were published in June 2020 for public consultation and are expected to be finalised this year.
  • Considering the declaration of crypto assets as a financial product under the FAIS Act. According to this declaration, any person providing advice or intermediary services related to crypto assets must be recognised as an FSP and must comply with the Act’s requirements. This will include crypto asset exchanges and platforms, as well as brokers and advisers. This work is expected to be finalised this year.
  • Enhancing monitoring and reporting of crypto asset transactions to comply with the Exchange Control Regulations. The process to include crypto assets in the regulations is under way.

Cliffe Dekker Hofmeyr director Howmera Parak says such an amendment to the Exchange Control Regulations will have a significant impact, because it will, in principle, mean that any cross-border transfers of cryptocurrency will require prior approval from the SARB.

“As a result, it is anticipated that it will burden our authorised dealer system with a host of these applications in the future, unless the SARB regulates the extent of approval requirements through the publication of a circular,” Parak says.

The Budget Review says the IFWG will publish a paper this year on the risks posed by stablecoins.

National Treasury is also exploring measures to regulate electricity‐intensive crypto mining, which is environmentally harmful, the Review says.

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