Modernizing Exchange Controls
South Africa’s National Treasury and the South African Reserve Bank have sought to calm growing concern in the crypto industry, saying proposed changes to the country’s capital-flow regime are not intended to criminalize the possession of digital assets and will not apply retrospectively.
The clarification follows a wave of public criticism and media scrutiny triggered by the draft Capital Flow Management Regulations, which are open for public comment and form part of the first major overhaul of South Africa’s exchange-control system since 1961. Treasury has extended the comment deadline from May 18 to June 30, 2026, after stakeholders requested more time.
The draft regulations aim to modernize how cross-border financial flows are monitored by shifting from a pre-approval model to a risk-based surveillance framework. A key change is the formal inclusion of crypto assets within the exchange-control system — a move legal analysts say closes a long-standing gap in how value can be moved across borders.
Legal experts at Cliffe Dekker Hofmeyr said crypto has long existed in an “awkward space,” widely used for cross-border transfers but not explicitly addressed in exchange-control rules. The draft regulations define crypto assets and bring them within scope, aligning with broader reforms such as classifying crypto as a financial product.
“ Crypto is not being liberalized; it is being absorbed into the existing system,” the firm said, noting that the inclusion means crypto can no longer be viewed as a workaround to traditional exchange controls.
Despite the government’s assurances, the draft has drawn sharp backlash from exchanges, academics, and advocacy groups who argue the proposal could have far-reaching consequences for ordinary users.
Several media reports have highlighted concerns that the draft could, in practice, criminalize routine crypto activity, impose fines of up to about $60,270 (1 million South African rand), and allow prison terms of up to five years for violations. Critics also warned that the regulations could grant border officials broad search-and-seizure powers, including the ability to inspect phones for crypto-related apps at airports.
Industry Backlash and Penalties
Farzam Ehsani, CEO of VALR and one of the most vocal critics, said the draft risked reversing years of constructive engagement between regulators and the crypto sector. He warned that provisions such as Regulation 8, which allows for the “compulsory surrender” of assets under certain circumstances, had fueled fears that crypto holders could be forced to sell their assets to the state or to authorized foreign-exchange dealers.
Treasury and the SARB rejected those interpretations, saying concerns about forced disposals of crypto, gold, or foreign currency are “misplaced.” Any such requirement, they said, would arise only in limited circumstances, such as when an offense has been committed.
One of the most persistent concerns raised by traders and legal analysts is the lack of clarity on how the draft will treat individuals who already hold crypto assets. Some experts have warned that these users could face new restrictions on how they buy or sell crypto going forward, given the absence of guidance on thresholds, reporting requirements, and the role of authorized intermediaries.
Treasury said stakeholder input is being considered and emphasized that the draft does not seek to criminalize ownership or impose retrospective obligations. As part of the next phase, Treasury will publish a draft manual on cross-border crypto asset transactions for public comment. The manual will outline activities that qualify as cross-border crypto transactions and which of those fall under capital-flow controls.
Officials said the framework is intended to strengthen the state’s ability to detect and disrupt illicit financial flows while complementing oversight by the Financial Intelligence Centre and the Financial Sector Conduct Authority. They also noted that years of exemptions and relaxations have allowed South Africans to legitimately externalize capital and hold foreign assets in various forms.
Treasury and the SARB will review all submissions after the June 30 deadline and make revisions where appropriate.
