The Minister of Finance does not plan to draft a comprehensive framework that exempts cryptocurrency transactions from exchange controls. Instead, targeted frameworks for cross-border transactions involving crypto assets will be developed.
Finance Minister Enoch Godongwana made this disclosure last month in response to questions from Democratic Alliance MP Wendy Alexander, who is a member of the National Assembly’s Standing Committee on Finance.
Alexander asked whether a comprehensive cryptocurrency exchange control exemption framework would be drafted for the Cabinet to consider in the current financial year. Her questioned referred to the classification of digital assets as financial products under the Financial Advisory and Intermediary Services Act and the absence of corresponding exchange control guidance. She said an analysis by National Treasury estimated potential tax revenue of R3.5 billion a year from crypto-related activities.
In a separate question, Alexander asked the minister what engagement has he had with the South African Reserve Bank’s Financial Surveillance Department about issuing a directive implementing a licensing framework for a crypto asset trading platform (CATP).
Godongwana said a comprehensive exemption framework for cross-border crypto asset transactions will not be forthcoming.
He said the SARB – following its recently concluded engagements with National Treasury and the Financial Sector Conduct Authority – will publish a framework this year on the business activities of crypto asset service providers (CASPs) where value is externalised or repatriated through crypto assets.
The framework will contain parameters, conditions, administrative responsibilities, as well as the reporting requirements applicable to cross-border transactions in crypto assets that may be undertaken by CASPs, to ensure there is no regulatory arbitrage or illicit financial flows.
Furthermore, Treasury is engaging the SARB on updating and strengthening the exchange control legislative framework to enable the above framework.
Treasury, through the Financial Regulators Steering Committee will co-ordinate further discussions to ensure there is no regulatory arbitrage regarding the oversight of digital assets. The committee comprises the SARB, FSCA, Prudential Authority, and Treasury.
Godongwana also referred to the abovementioned framework in his response to Alexander’s question about CATP licensing.
The background to Alexander’s questions is the landmark decision in May by the High Court in Pretoria, which ruled that cryptocurrencies do not fall under the Exchange Control Regulations.
Read: Cryptocurrencies outside Exchange Control Regulations, court rules
The Court determined that digital assets such as Bitcoin are neither “money” nor “capital” as defined in the Regulations, thereby effectively exempting them from restrictions on exporting capital without approval from the SARB.
The Court acknowledged a “regulatory lacuna” in South Africa’s exchange control framework, echoing an academic paper that described cryptocurrencies as operating in a “legal vacuum”.
Judge Mandlenkosi Motha criticised the SARB for not updating the 60-year-old Exchange Control Regulations to address cryptocurrencies, which have existed for more than 15 years.
The Reserve Bank has appealed the judgment.
