When finance minister Enoch Godongwana tabled the medium-term budget policy statement (MTBPS) recently, he admitted, to his credit, something that regulators and government rarely say in public: the first draft did not work.
After thousands of comments on the Draft Capital Flow Management Regulations, he called for a new approach.
The National Treasury and the South African Reserve Bank deserve credit for listening. They have effectively paused the process to get it right, instead of pushing through rules that would have hurt the people they are meant to protect. That kind of openness builds trust between regulators and industry.
The draft capital flow regulations, published in April, with a crypto assets manual for cross-border activity following in August, set out to modernise exchange controls that date back to 1961. The aim was sound: a risk-based system focused on surveillance, stopping illicit flows and regulating crypto properly. The method was not.
Crypto platforms would have needed prior approval from the Bank’s financial surveillance department to facilitate cross-border transactions. Businesses would have been barred from using stablecoins for cross-border payments and to bring funds home.
Pre-approval would have placed a heavy burden on ordinary South Africans who use crypto legitimately, but without improving oversight. The minister’s new direction, judging transactions on legitimacy and tax compliance, fits how the market actually works.
It also follows the direction the world is taking. Moving money across borders is becoming easier, cheaper and faster, and stablecoins are central to that shift. These are cryptocurrencies pegged to another asset, such as the dollar or rand. Blocking them for cross-border payments would have made South Africa an outlier, just as other markets are starting to embrace them.
It would also have undone real progress. Since the Financial Sector Conduct Authority (FSCA) declared crypto assets financial products in 2022, it has licensed about 300 providers and brought the industry into the open. Restrictive cross-border rules would push that activity offshore and onto peer-to-peer channels, where it is harder to see and impossible to tax.
The Treasury now plans a fresh consultation phase and a revised draft. That draft should build on the FSCA’s licensing regime, rely on the identity checks and transaction monitoring licensed platforms already carry out, and enable stablecoins as a tool for fast, transparent payments.
The industry’s response to the draft regulations and crypto manual proves one thing: South Africa has a highly knowledgeable, innovative and forward-looking industry — ranging from individuals, traditional financial firms and firms specialising in digital assets. They all stand ready to engage with the Treasury and the Bank to get the rules right.
Because if we do, South Africa can become the regulated gateway between Africa’s digital asset markets and global finance.
Reitz is general manager for Africa at Luno
