Luno has officially submitted its comments to the National Treasury in response to the Draft Capital Flow Management Regulations, which aim to bring crypto assets under the auspices of exchange control, and we urge that any final regulatory framework be fair, fit for purpose, and confined to governing crypto assets that actually move offshore, as is the mandate of exchange control.
Our first and most fundamental concern is one of process. Regulatory changes of this magnitude — overhauling a 65-year-old exchange control framework and profoundly impacting the privacy rights of millions of South Africans should, in our view, have been enacted as a new Act passed through Parliament, allowing for the deliberative rigour of parliamentary processes. By proceeding instead through ministerial regulation, the executive branch effectively bypasses the democratic process for changes that will affect the fundamental property and privacy rights of millions of South Africans.
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This matters not only in principle but in practice. South Africa’s digital asset sector presents a significant opportunity to drive economic growth, attract investment and create skilled employment across technology, legal, financial and compliance professions. As the sector expands, so does the tax base, delivering broader benefits to government revenue and the wider economy. The sector needs regulation that balances oversight with growth — and experience demonstrates that overly restrictive regulation simply pushes digital asset activity underground or offshore, beyond the reach of domestic regulators and tax authorities.
Most significantly, the draft regulations treat crypto asset purchases and sales above an undefined threshold as offshore transactions, subjecting domestic trades to exchange controls. Applying exchange control rules to locally bought crypto assets that remain within the country’s borders directly contradicts the purpose of exchange control and transforms a specific economic tool into an instrument of general state surveillance — a particularly serious concern given that the digital asset sector is already robustly regulated by the Financial Intelligence Centre (FIC) and the Financial Sector Conduct Authority (FSCA).
The regulations also impose a reporting requirement on transactions above a yet-unspecified threshold, creating an unmanageable administrative burden while effectively prohibiting legitimate cryptocurrency trading, given that large transaction volumes are processed within seconds. The cost to the Treasury of processing permission for hundreds of thousands of domestic trades would represent an unnecessary and inefficient use of state resources.
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We are also concerned about the treatment of stablecoins. Stablecoins are the most widely used digital asset in global payments and commerce. The regulations would effectively limit domestic use of these globally redeemable assets — a position in direct contradiction to the SARB’s own stated commitments in the SARB Vision 2023 document, which contemplates stablecoins and crypto payments as a form of payment within the National Payment System overhaul.
Three provisions in the draft regulations raise serious constitutional concerns. An administrator may attach and forfeit crypto assets on the basis of reasonable suspicion alone, without any judicial oversight — a power that conflicts with existing law. The Treasury would also be empowered to force the sale of privately held crypto assets at a price it determines, which effectively amounts to expropriation and constitutes an unconstitutional intrusion into private property rights. Furthermore, a CASP’s licence may be revoked for administrative non-compliance, meaning a business-ending sanction could be imposed for a technical reporting error.
Finally, the regulations treat all crypto assets as effectively identical, bringing crypto assets such as Bitcoin, stablecoins, and tokenised real-world assets within the ambit of exchange control. By attempting to capture every digital asset regardless of utility or economic function, Treasury risks inadvertently stifling South Africa’s broader blockchain technology sector.
To remedy these shortcomings, Luno has recommended that:
- The framework governing crypto assets be enacted through primary legislation, not regulation, to ensure proper parliamentary oversight and constitutional compliance.
- Crypto assets bought and held on South African-licensed exchanges should be deemed onshore and not subject to exchange control.
- Non-resident market makers, such as international trading firms, should be permitted to continue operating in the South African market subject to appropriate registration.
- There is sufficient differentiation between digital asset classes based on economic substance and functional use, recognising Bitcoin as an issuerless commodity, stablecoins as payment instruments subject to their own dedicated regulatory workstream, and utility tokens as infrastructure tools outside the proper scope of capital flow exchange control management.
- The forced sale and private key disclosure mechanisms are, in our view, unconstitutional and must be removed from the final framework.
- Stablecoins and cross-border payments by businesses are permitted, within a clearly defined reporting framework.
Luno Africa General Manager Marius Reitz said, “Crypto Asset platforms require legal certainty with regards to exchange control, and we would welcome a fair and balanced approach to such regulation. However, we urge that such significant changes be made through a thorough parliamentary process, the need for which is even more acute given that the proposed regulations will affect the fundamental property and privacy rights of millions of people.”
“Luno has long argued locally held crypto assets should be designated as onshore assets. This will drive growth in the industry, increasing jobs and tax revenue. Exchange control should only be applied to assets leaving the country. In short, South Africa needs a regulatory framework that protects the integrity of the digital asset system without stifling the innovation, investment and economic growth that the digital asset sector is uniquely positioned to deliver.”