A recent High Court judgment has drawn attention to questions about how South Africa’s exchange control framework should be interpreted when offshore crypto trading is conducted through intermediated, loan-funded structures.
The Court did not rule on whether the conduct at issue complied with exchange control requirements. Instead, it dismissed an urgent application on procedural grounds, leaving the substantive regulatory questions unanswered.
Those unanswered questions – including how foreign exchange allowances may be used, how intermediated platforms are assessed, and how offshore activity funded through loans fits within the Exchange Control Regulations – arise at the intersection of long-standing regulatory principles and an evolving crypto market.
While arbitrage trading itself is not prohibited under South African exchange control rules, the matter turns on how foreign exchange allowances are used when offshore activity is funded through loans and intermediated by a platform.
The case before the High Court
The matter came before the High Court in Johannesburg as an urgent application brought by Kastelo (Pty) Ltd, a Cape Town-based fintech company. Kastelo sought to review and set aside a blocking order imposed on its bank accounts under the Exchange Control Regulations. The order was issued by the South African Reserve Bank’s Financial Surveillance Department (FinSurv).
Kastelo is authorised as a financial services provider by the Financial Sector Conduct Authority, holding Category I and II licences. It is registered as an accountable institution with the Financial Intelligence Centre and as a credit provider with the National Credit Regulator. A related entity, Kastelo Africa (Pty) Ltd, is authorised by the Reserve Bank as a Category 3 Authorised Dealer in Foreign Exchange with Limited Authority, permitting it to provide cross-border remittance and payment services.
The blocking order was imposed on Kastelo’s account held with Access Bank, an authorised dealer under the exchange control framework. The effect of the order was to freeze the account pending the outcome of a regulatory investigation, preventing Kastelo from accessing or moving funds through it. A blocking order is an interim regulatory measure; it does not constitute a finding of wrongdoing and is intended to preserve assets while an investigation is conducted.
The order was issued on 24 November 2025. Kastelo became aware of it the following day and contacted the SARB to obtain reasons for the decision. Although reasons were initially provided orally, Kastelo requested written reasons in terms of the Promotion of Administrative Justice Act. Written reasons were furnished on 15 December 2025.
On 16 December 2025, Kastelo launched an application under Rule 53 of the Uniform Rules of Court, seeking to have the blocking order reviewed and set aside. The matter was enrolled on the urgent roll and initially set down for hearing on 30 December 2025 but was removed from the roll by agreement between the parties and re-enrolled for hearing on 6 January 2026.
Kastelo argued that the application was urgent because the blocking order prevented it from conducting its business and meeting contractual obligations to clients, and because it had undermined client confidence and commercial relationships. It contended that the urgency was not self-created, pointing to its engagement with the SARB and the time taken for written reasons to be provided.
The SARB opposed the application, arguing that Kastelo had been informed of the reasons for the blocking order shortly after it was issued and had not acted with the necessary haste. It contended that any urgency was self-created and that Kastelo had not demonstrated it would be unable to obtain substantial redress if the matter proceeded in the ordinary course.
In a judgment handed down on 19 January 2026, the High Court dismissed the application for lack of urgency. The Court found that Kastelo had delayed in bringing the application, had agreed to postpone the matter after enrolling it on the urgent roll, and had imposed unreasonably short timelines on the respondents. It held that the alleged commercial harm did not, on its own, justify a departure from the ordinary court process.
The Court confined its ruling to the issue of urgency and did not consider whether the blocking order was substantively justified or whether Kastelo’s conduct complied with the Exchange Control Regulations. Kastelo says it expects the matter to be heard on the ordinary roll later in 2026.
The judgment records that the SARB acted on information received from Kastelo’s bank, whistleblowers, and some clients indicating that the nature of Kastelo’s transactions appeared to contravene exchange control rules. Kastelo disputes this characterisation and says it has never received formal complaints from its clients directly.
Kastelo’s business model and its response
Kastelo’s digital platform enabled South African users to participate in offshore crypto trading strategies through a structured, intermediated arrangement.
One component of the platform facilitated crypto arbitrage – a strategy that seeks to exploit price differentials between offshore and local cryptocurrency markets. The arbitrage process involved purchasing crypto assets on offshore exchanges, transferring those assets to South Africa, and selling them locally after accounting for costs and charges. The profit made would, after the relevant fees and charges, be shared with the client.
South African residents are permitted to externalise limited amounts of capital annually under the Single Discretionary Allowance (R1 million) and the Foreign Investment Allowance (R10 million), subject to regulatory conditions. Kastelo’s platform facilitated the conversion of rands into foreign currency through authorised dealers and the deployment of those funds offshore to acquire crypto assets.
In certain circumstances, Kastelo advanced funds to qualifying clients who did not have sufficient capital to participate in the strategy. These advances were structured as loans.
Kastelo says the provision of loans was a deliberate and regulated feature of its platform, rather than an attempt to circumvent the exchange control rules. According to the company, all lending was conducted in compliance with the National Credit Act and only to clients who met affordability and onboarding requirements.
The company says it concluded written credit agreements, applied standard disclosure and quotation processes, conducted affordability assessments – including checks to prevent reckless credit – and followed credit-bureau, consent, record-keeping, and governance requirements across the lifecycle of each loan.
Kastelo says it believes its business model was compliant at all relevant times. However, it has declined to advance a detailed interpretation of the Exchange Control Regulations in the media, saying that question is properly one for determination through regulatory and legal processes.
Exchange control concerns and regulatory scrutiny
The SARB authorises banks and other institutions as Authorised Dealers and Authorised Dealers with Limited Authority to assist natural and juristic persons with offshore transactions. These institutions are required to monitor transactions and report contraventions or suspicious activity to FinSurv.
FinSurv is empowered to issue blocking or attachment orders under Regulations 22A and 22C of the Exchange Control Regulations. Once a blocking order is imposed, FinSurv has up to 36 months under the Currency and Exchanges Act to complete a full investigation.
In response to questions from Moonstone, the SARB said blocking orders may be considered where there are “reasonable grounds to suspect a contravention of the Exchange Control Regulations”, including cases involving “possible unauthorised externalisation of funds, disguised cross-border flows or attempts to evade the approvals framework”. Such orders may also be used where there is a risk that assets could be “dissipated or rendered unrecoverable before an investigation can be concluded”.
The SARB said that raising bona fide loans to invest offshore does not, in itself, render a subsequent foreign exchange transaction unlawful. “However, any potential transactions that fall outside the ambit of section B.2(B) of the Currency and Exchanges Manual for Authorised Dealers … would require enhanced due diligence and scrutiny.”
Section B.2(B) sets out the framework under which authorised dealers may process offshore investments by South African resident individuals using their foreign exchange allowances. The provision is premised on individuals investing as principals, using their own allowances for their own risk and benefit. Where offshore activity is structured through intermediaries or funded by loans, regulators may examine whether those transactions still fall within that framework or require enhanced scrutiny.
The Reserve Bank said FinSurv would have concerns if individuals:
- “had no genuine intention to make foreign investments as principals for their own risk or profit and did not regard or deal with the assets invested in or the proceeds thereof vesting in themselves”;
- made their allowances available for use by third parties while representing to authorised dealers that the foreign currency was for their own use; or
- “understood that their allowances would be used for the benefit of the third party without the assumption of any risk of a loss … in return for an agreed fee”.
The SARB also referred to Exchange Control Circular 6/2022, which clarified that international trading accounts may not be funded using South African credit, debit, or virtual cards. The policy rationale, according to the Reserve Bank, is that such instruments are intended for current payments rather than capital transactions, which must be effected via the applicable foreign exchange allowances.
Kastelo disputes the relevance of that circular to its business model. The company says the circular addresses the use of South African payment cards to fund offshore trading accounts, rather than loan-funded transactions processed through authorised dealers.
Neither the judgment nor the SARB’s response addresses why regulatory action was taken against Kastelo in November 2025, despite the company’s position that it operated its model openly for several years. The High Court did not consider this issue, and the Reserve Bank has indicated that the merits of the matter will be assessed through its investigative process.
Market context: the evolution of crypto arbitrage in SA
The regulatory questions raised by the Kastelo matter have emerged in a crypto market that has changed significantly. Market participants note that the conditions that once supported wide arbitrage spreads have steadily diminished as the market has matured.
According to data from Luno, the largest crypto platform in South Africa, arbitrage spreads that exceeded 8% in 2017 have compressed gradually but consistently, narrowing to about 1% to 2% in recent years, before costs. Although temporary spikes still occur during periods of rapid market movement, sustained high-margin arbitrage opportunities have largely disappeared.
As spreads have narrowed, arbitrage has become less attractive as a retail strategy. Luno notes that for many individual traders, particularly those operating within the limits of the Single Discretionary Allowance, thin margins are often outweighed by transaction costs, operational complexity, and execution risk.
Market participation has also shifted. In the early years of crypto adoption, arbitrage activity was dominated by retail participants. Over time, this has given way to more institutionalised participation, including professional trading firms and market makers. On Luno’s platform, institutional and business clients now account for the majority of trading volumes, contributing to deeper liquidity and more efficient price discovery.
Some industry commentary has suggested that large-scale, intermediated arbitrage models may have contributed to the compression of spreads. Kastelo rejects that characterisation, saying its activities reflected broader market conditions rather than driving them.
Luno’s data does not attribute the narrowing of spreads to the conduct of any individual platform. Despite the exit or scaling back of some arbitrage-focused operators, spreads have not widened, suggesting that structural market factors – including improved infrastructure, increased institutional participation, and more efficient pricing – have been decisive.
Where matters now stand
The Kastelo judgment resolves only the procedural question of urgency. It does not determine whether the blocking order was lawfully imposed or whether Kastelo’s business model complies with the Exchange Control Regulations.
Kastelo says it remains open to resolving the matter through the appropriate regulatory and dispute-resolution channels and hopes the outstanding interpretive issues can be clarified and concluded as efficiently as possible, so it can continue engaging South African regulators on an institutional footing and remain a reliable counterparty within the local compliance framework.
What remains unresolved is how long-standing exchange control principles will ultimately be applied to intermediated, loan-funded offshore trading models that have operated for several years. The dispute is not about crypto trading as such, but about how exchange control rules assess control, risk, and the use of foreign exchange allowances when activity is structured through platforms operating at scale. Those issues now fall to the regulatory investigative process and, if contested, to further legal proceedings.
