Bitcoin crackdown in South Africa — what you should know

The Intergovernmental Fintech Working Group (IFWG) published its position paper on crypto assets earlier this month, promising to bring cryptocurrencies into the South African regulatory purview in a phased and structured manner.

In secondary documents published together with the paper, regulators showed that they also wanted to crack down hard on the nascent industry using existing exchange control regulations.

These crackdowns seem contrary to earlier statements made by the South African government to create a neutral and facilitative environment for crypto assets.

Earlier in June, National Treasury chief director Olaotse Matshane told the National Council of Provinces that South Africa is taking a cautious and facilitative “test and learn” approach to regulating crypto assets.

She said that South Africa wanted to allow the activity, but it must be responsible, with the consumer being protected.

Shortly after Matshane’s presentation, the South African Reserve Bank (SARB) and IFWG published the position paper on crypto assets, together with an FAQ document.

Among the positions announced in the FAQ was that it is illegal to buy cryptocurrency in South Africa from an offshore provider using credit or debit cards.

Banks soon banned clients from buying cryptocurrency using your credit card from overseas exchanges like Binance.

The IFWG also warned that it is a criminal offence to transfer cryptocurrency from a local exchange provider like Luno, VALR, and AltCoinTrader to an overseas one.

It further warned that there are tax and exchange control implications of “staking” crypto assets, though it did not clarify what the implications are.

In responses to questions from MyBroadband, the Financial Surveillance Department (FinSurv) at SARB further clarified that any transfer of cryptocurrency out of South Africa is a criminal offence under existing exchange control regulations.

This includes transferring assets from your own self-hosted wallet to individuals overseas, or to decentralised exchanges.

It should be noted that the position paper is not all threats and crack-downs, and it was generally favourably received by South Africa’s digital asset industry.

The paper recommends that crypto asset service providers, or CASPs, be regulated in a phased approach.

The IFWG’s Crypto Assets Regulatory Working Group recommended that:

  • A licensing framework be introduced for CASPs.
  • FICA be applied to the crypto-asset industry.
  • Exchange control regulations be expanded to allow CASPs to facilitate cross-border transactions in a way that FinSurv can monitor.

Cryptocurrency exchanges and other service providers in the industry said that they would welcome such regulations, as it would provide much-needed certainty to help them do business internationally.

If sensible exchange control regulations are implemented, it will attract foreign direct investment to South Africa, and allow the country to compete in a nascent and rapidly expanding technology field.

The following table summarises the IFWG position paper, the FAQ document, and the clarifying remarks FinSurv provided to MyBroadband.

What you should know What the IFWG / FinSurv says
Buying cryptocurrency
You are allowed to buy cryptocurrency in South Africa. South African residents are not precluded from purchasing crypto assets from local crypto-asset exchanges with their credit and/or debit cards in South African Rand. Such a transaction does not fall within the ambit of the Exchange Control Regulations.
You are allowed to buy cryptocurrency from offshore exchanges within limits. Individuals may purchase crypto assets from abroad using their single discretionary allowance of up to R1 million and/or their individual foreign capital allowance of up to R10 million with a Compliance Status (TCS) PIN issued by the South African Revenue Service, per calendar year. In this regard, the bank concerned must convert the funds transferred abroad into foreign currency. Such funds are transferred via the banking system as an Electronic Funds Transfer (EFT). There is also no obligation on an individual to return such funds permanently to South Africa.
You are not allowed to buy cryptocurrency from an offshore exchange using your credit or debit card. Credit and/or debit cards, including co-branded cards issued by banks — as licensed by American Express, Diners Club, MasterCard or Visa — may not be utilised to purchase crypto assets on a foreign crypto-asset exchange.
Transferring cryptocurrency
You are allowed to withdraw your cryptocurrency from a South African exchange into your own wallet. With the application of the current exchange control policy, individuals are not prohibited from withdrawing their crypto assets held on a South African-domiciled crypto asset trading platform to a private wallet.
You are not allowed to transfer cryptocurrency offshore from a local exchange or wallet provider. Exchange Control Regulation 10(1)(c) prohibits transactions where capital or the right to capital is, without permission from National Treasury, directly or indirectly exported from South Africa. This includes transactions where an individual purchases crypto assets in South Africa and uses them to externalise ‘any right to capital’. Contravening these regulations is a criminal offence.
You are not allowed to transfer cryptocurrency offshore from your own wallet. Transferring crypto assets from a self-hosted or private wallet to an offshore-based wallet (whether hosted or unhosted or operated by a business entity such as a foreign-domiciled crypto asset trading platform or an individual) would constitute a contravention of Exchange Control Regulation 10(1)(c).
You are not allowed to transfer cryptocurrency from South Africa to a decentralised exchange. From the Financial Surveillance Department’s perspective, decentralised exchanges would be viewed as foreign crypto assets service providers.
Payments
Cryptocurrency may be used to make payments, even though it is not legal tender or e-money. Although crypto assets are not money, they can nevertheless perform certain money-like functions. Merchants and individuals may choose to accept ‘payment’ offered in crypto-assets of their own free will, with the understanding and acceptance of the risk that they will not have regulatory recourse should something go wrong. In this instance, crypto-assets function as a barter instrument, with the price being determined per the ‘willing-buyer-willing-seller’ principle.
Mining
Cryptocurrency mining is allowed, but you have to pay your taxes and abide by exchange control regulations. The proceeds of mining are subject to relevant tax and exchange control regulations and legislation.
Staking
Staking is permitted, but there are tax and exchange control implications. There are both tax and exchange control implications of staking crypto assets. These implications are exacerbated if an individual’s crypto assets are staked via an offshore third party.
Classification of cryptocurrency
Cryptocurrency is not money or legal tender. In the South African context, legal tender (i.e. money) is limited to banknotes and coins issued by the SARB. From a legal perspective, crypto assets are therefore not recognised or viewed as money.
Cryptocurrency is not e-money. In terms of the National Payment Systems Act 78 of 1998, only registered South African banks can issue e-money, thus wholly excluding crypto assets.
Buying or depositing cryptocurrency with a South African provider is not a bank deposit. The Banks Act 94 of 1990 defines a deposit as necessarily being ‘money’, which refers to legal tender as defined in the SARB Act, which excludes crypto assets as explained above.
Decision to regulate cryptocurrency is not an endorsement by South African regulators. The decision to regulate crypto assets does not signal or suggest endorsement of crypto assets by the IFWG members. The decision to regulate crypto assets aims to promote responsible innovation. The IFWG reiterates that crypto assets remain highly volatile and inherently risky given their decentralised and disintermediated value proposition.
Crypto asset service providers will be regulated, while cryptocurrencies themselves will not be regulated. The intention is not to regulate the actual crypto assets and associated products per se but rather the entities that provide services around such products. Therefore, the South African regulators intend to regulate crypto assets by regulating the crypto asset service providers (CASPs).
Cryptocurrency is not foreign currency. In terms of the Exchange Control Regulations of 1961, foreign currency is defined as any currency that is not legal tender in South Africa, which implies that such foreign currency is legal tender in another country. Given that crypto assets are consistently not regarded as legal tender globally, crypto assets are therefore excluded from the definition of foreign currency for the Exchange Control Regulations of 1961.
Consumers have no recourse for losses due to investing in crypto assets. Crypto assets remain highly volatile, and investing in crypto assets remains inherently risky. As with any investment, the ultimate responsibility to ascertain whether the risk associated with an investment lies with the consumer. As always, returns are not guaranteed, and past performance is not an indicator of future performance.
Regulation recommendations
Anti-Money Laundering / Combating the Financing of Terrorism framework — known as FICA in South Africa Crypto asset service providers should be added to the list of accountable institutions, bringing with it all the responsibilities and powers afforded to recognised financial service providers.
Framework for monitoring cross-border financial flows. Among others, expansion of the Authorised Dealer in foreign exchange with limited authority framework allows the appointment of crypto-asset trading platforms for cryptocurrency-related cross-border transactions. Financial Surveillance Department of the SARB to set trigger events for reporting cross-border transactions.
Crypto assets should be declared a financial product. Short-term solution — Require crypto-asset trading platforms to obtain licences to become intermediaries. Medium-term solution — Amend the Financial Sector Regulation Act 9 of 2017 and/or include cryptocurrency-related activities in the Conduct of Financial Institutions Bill.

Now read: How to avoid a Bitcoin scam in South Africa

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Bitcoin crackdown in South Africa — what you should know