The South African Reserve Bank and other regulators have warned that it is a criminal offense to transfer cryptocurrencies bought on a local exchange to one outside the country.
Regulators issued the warning through the Intergovernmental Fintech Working Group (IFWG), which recently released an FAQ document as part of their position paper on crypto assets.
The IFWG consists of the Competition Commission, the Financial Intelligence Center, the Financial Sector Conduct Authority, the National Credit Regulator, the National Treasury, the South African Revenue Service and the South African Reserve Bank.
“Exchange Control Regulation 10 (1) (c) prohibits transactions in which capital or the right to capital is exported directly or indirectly from South Africa without the approval of the National Treasury,” states the IFWG’s FAQ.
This includes transactions in which a person buys crypto assets in South Africa and uses them to externalize “any right to capital”.
The document also warns that violating these rules is a criminal offense.
Violation of South Africa Exchange Control Regulations is punished with a fine of R250,000 and possibly up to five years in prison.
The fine may be increased up to the value of the offending transaction. However, the regulations explicitly link this escalation to “any security, foreign currency, gold, banknote, check, postal order, bill of exchange, bill of exchange, debt, payment or commodity”.
MyBroadband reached out to the three major crypto asset exchanges in South Africa for comment, but none of them wanted to go directly into the challenges this announcement could pose for them.
Both Luno and Altcoin Trader offer services that customers can use to earn interest on a portion of the cryptocurrency they hold on their respective platforms.
These products rely on offshore partners to function and it is unclear how the SARB and IFWG regulations affect such services.
Richard de Sousa, CEO of Altcoin Trader
Richard de Sousa, the CEO of Altcoin Trader, said they were looking at the papers published by the IFWG and “considering many things”.
De Sousa said that Altcoin Trader is undecided about his next move and therefore does not feel that there can be meaningful feedback at this point.
Marius Reitz, Luno’s GM for Africa, said that while the position paper makes it clear that the intention is to incorporate crypto assets into South Africa’s foreign exchange control framework, it is unclear how this will be implemented and regulated.
“Luno has engaged in extensive exchanges with the Reserve Bank on the practical challenges arising from the application of the existing exchange control regulations to crypto assets and looks forward to continuing to work together to ensure that the regulations serve their purpose,” said Reitz .
“Luno supports clear and market-friendly regulations for the crypto industry,” he said.
He warned that the industry is still in its infancy and overly burdensome regulations imposed too soon could stifle it or drive it underground while it continues to thrive around the world.
“Taking a step-by-step approach to implementing regulation for the crypto industry in South Africa – starting with mandatory AML / KYC obligations – is a sensible approach that will help mitigate any potential negative effects of regulation,” Reitz said.
He regretted the SARB and the IFWG, noting that regulators have no easy task.
“You have to deal with a new technology that few understand,” says Reitz.
“Luno will continue to work with regulators around the world, including the South African Reserve Bank, to create the appropriate regulatory framework that is optimal for everyone involved.”
VALR, which works with an offshore exchange to offer some of its services, did not respond to a request for comment.
Marius Reitz, Lunos GM for Africa
The use of credit cards to purchase cryptocurrency on offshore exchanges is prohibited
The Reserve Bank’s crackdown on cryptocurrencies goes beyond warning the IFWG that moving your cryptocurrencies overseas is a criminal offense.
It has also banned banks from allowing customers to buy crypto assets from overseas providers using their debit or credit cards.
Absa told MyBroadband on Monday that it was could no longer allow customers to buy cryptocurrencies from platforms like Binance due to exchange control regulations.
It was said that this was an industry problem and not Absa-specific.
Standard Bank confirmed that due to exchange controls, it will also not approve card-based purchases of cryptocurrencies from offshore providers.
Nedbank did not respond by publication, while Capitec and Discovery Bank did not respond to a request for comment.
TymeBank said their customer base is not active in this type of purchase and therefore is unable to comment on it.
The FNB declined a direct response and instructed us to speak to the Reserve Bank.
“We approve and reject various types of transactions on the basis of a risk-based framework and in accordance with SARB’s guidelines on currencies and exchanges,” said the FNB.
MyBroadband asked the SARB to clarify their sudden ban on credit card purchases of crypto assets and gave the following feedback:
“Individuals can buy crypto assets from abroad by using their individual discretionary allowance of up to 1 million,” it said.
Such funds will be transferred through the banking system as electronic money transfers, the Reserve Bank said.
“However, credit and / or debit cards, including co-branding cards issued by banks and licensed by American Express, Diners Club, MasterCard or Visa, may not be used to purchase crypto assets from a foreign crypto asset Exchange. “