Story audio is generated using AI
The National Treasury and the South African Reserve Bank have introduced new proposals to direct cross-border transactions in crypto as part of a broader effort to strengthen the oversight of financial activities and curb emerging risks associated with virtual assets.This comes as South Africa scrambles to demonstrate its ability to prosecute and stop illicit financial flows after exiting the Financial Action Task Force (FATF) greylist in October last year, which it had been placed on in February 2023 over significant weaknesses in its system to combat money-laundering and terrorist financing.The FATF commenced a mutual evaluation of South Africa earlier this year, which will conclude in October 2027.The Reserve Bank does not recognise cryptocurrency as legal tender but has conceded the rapid growth of its use in the country, repeatedly warning that such assets pose a danger to the stability of South Africa’s financial system and their limited regulation could allow risks to build up undetected.The draft crypto assets manual published for public comment on Monday should be read with proposed regulations in April as measures to “minimise the risk of regulatory arbitrage between regulated entities conducting cross-border activities”, the Treasury and Bank said in a joint statement.It will also enhance the ability of the Financial Surveillance Department (FinSurv) to detect, deter and disrupt illicit financial flows. FinSurv is a division of the Bank responsible for the daily administration of exchange controls, overseeing the movement of capital into and out of South Africa, and preventing illegal transfers.“These measures will complement the existing regulatory oversight of crypto asset activities by the Financial Sector Conduct Authority, Financial Intelligence Centre and South African Revenue Service,” the Treasury and Reserve Bank said.In the April regulations, the Treasury proposed a sweeping overhaul of its decades-old rules governing money flows, including tightening its control on crypto assets, seeking to bolster its position as a financial hub for the continent and attract more investor capital. They include raising discretionary offshore allowances for individuals and easing capital flow restrictions.The regulations stipulate that an authorised crypto asset service provider (CASP) may not buy, borrow, receive, sell, lend or deliver such assets except for such purposes or on such conditions that the National Treasury may determine.The new crypto asset manual sets out the application and adjudication process for authorisation to conduct the business of an authorised CASP as well as the permissions and conditions applicable to transactions in crypto assets deemed as cross-border, details of related administrative responsibilities and reporting requirements.It reiterates that crypto assets are not legal tender in South Africa, and therefore any merchant or beneficiary may refuse them as a means of payment.“These assets are not guaranteed or backed by the South African Reserve Bank, as they operate independently from the central bank, and users are alerted to the potential risk of fluctuation in the value of crypto assets,” the manual says.“Legal protection or recourse available to users, traders or intermediaries of crypto assets is based on general common law principles. Dealing in crypto assets is performed at the end-user’s sole and independent risk.”The draft provides clarity on the point at which crypto transactions are regarded as cross-border, with the trigger point arising when assets are transferred between a domestic authorised CASP and an offshore one, or from a domestic authorised CASP to a noncustodial wallet, resulting in a cross-border inflow or outflow that must be reported to FinSurv.“The above means that only individuals, at this stage, will be allowed to externalise crypto assets via authorised CASPs in terms of their single discretionary allowance or foreign capital allowance,” the Treasury and Bank said.Legal protection or recourse available to users, traders or intermediaries of crypto assets is based on general common law principles. Dealing in crypto assets is performed at the end-user’s sole and independent risk.— New crypto asset manual Providing the trigger point ensures that crypto asset transactions giving rise to cross-border flows are consistently identified, appropriately reported and effectively monitored. The draft regulations and manual are subject to refinement based on public comments and discussions with stakeholders.Last year the Bank said it had undertaken an inventory that showed the number of South Africans with crypto-trading accounts had nearly doubled to 8-million since early 2022. Almost R63bn had been externalised through local crypto platforms since 2019 — flows that fell outside exchange-control reporting. At the Bank’s AGM last Friday, governor Lesetja Kganyago highlighted the responsibility it has to limit the dangers of digital technology to the financial system without stifling innovation.“Of course, finding that balance is not easy, and our efforts can leave people unhappy. We saw this, for example, with the draft cross-border regulations on crypto assets,” he said.Kganyago conceded that South Africa’s system of capital flow measures has been “cumbersome” but added: “If we have these rules, we cannot simultaneously have weak regulatory frameworks for crypto assets alongside a rigorous system of reporting and permissions for everyone else. That is not a level playing field.”The South African Revenue Services (Sars) has previously also lamented that millions of taxpayers are not declaring crypto assets and trades on their tax returns, and has tightened its monitoring to ensure compliance.Business Day
