The South African Reserve Bank and other regulators have warned that it is a criminal offence to transfer cryptocurrency bought on a local exchange to one located outside the country.
Regulators issued the warning through the Intergovernmental Fintech Working Group (IFWG), which recently published an FAQ document as part of its position paper on crypto assets.
The IFWG is comprised of the Competition Commission, Financial Intelligence Centre, Financial Sector Conduct Authority, National Credit Regulator, National Treasury, the South African Revenue Service, and the South African Reserve Bank.
“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,” the FAQ from the IFWG states.
It added that this includes transactions where an individual purchases crypto assets in South Africa and uses them to externalise “any right to capital”.
The document goes on to warn that breaking these regulations is a criminal offence.
Contravening South Africa’s exchange control regulations carries a penalty of a R250,000 fine and possibly up to five years imprisonment.
The fine may be increased up to the value of the offending transaction under certain circumstances. However, the regulations specifically link this escalation to “any security, foreign currency, gold, bank-note, cheque, postal order, bill, note, debt, payment or goods”.
MyBroadband contacted South Africa’s three major crypto asset exchanges for comment, but none of them wished to directly address the challenges this pronouncement might cause for them.
Both Luno and Altcoin Trader offer services that allow clients to earn interest on some of the cryptocurrency they hold on their respective platforms.
These products rely on offshore partners to function and it is unclear how the decrees from the SARB and IFWG affect such services.
Richard de Sousa, the CEO of Altcoin Trader, said that they are looking at the papers published by the IFWG and “considering many things”.
De Sousa said that Altcoin Trader is undecided about its next move and therefore doesn’t feel like it can offer meaningful feedback at this stage.
Marius Reitz, Luno’s GM for Africa, said that while it is clear from the position paper that there is the intention to bring crypto assets within South Africa’s exchange control framework, it is unclear how this will be implemented and regulated.
“Luno has engaged extensively with the Reserve Bank on the practical challenges posed by applying the existing exchange control regulations to crypto assets and looks forward to continuing to work together to ensure regulations are fit for purpose,” Reitz said.
“Luno is supportive of clear and market-conducive regulations for the crypto industry,” he stated.
He warned that the industry is still in its formative stages and overly burdensome regulations imposed too early may stifle it or drive it underground, while it continues to flourish globally.
“A phased approach to implementing regulation for the crypto industry in South Africa — beginning with mandatory AML/KYC obligations — is a sensible approach which will assist in mitigating any potential negative implications of regulation,” Reitz said.
He commiserated with the SARB and IFWG, stating that regulators don’t have an easy task.
“They have to get to grips with a new technology that very few yet understand,” said Reitz.
“Luno will continue to work with regulators around the world, including the South African Reserve Bank, to put in place the appropriate regulatory frameworks that are optimal for all stakeholders.”
VALR, which partners with an offshore exchange to offer some of its services, did not respond to a request for comment.
Using credit cards to buy cryptocurrency from offshore exchanges banned
The Reserve Bank’s crackdown on cryptocurrencies goes beyond the IFWG warning that moving your cryptocurrencies offshore is a criminal offence.
It has also banned banks from allowing clients to buy crypto assets from overseas providers using their debit or credit cards.
Absa told MyBroadband on Monday that it could no longer allow clients to buy cryptocurrencies from platforms like Binance due to exchange control regulations.
It said that this was an industry problem and not Absa-specific.
Standard Bank confirmed that it would also not approve card-based purchases of cryptocurrency from offshore providers due to exchange controls.
Nedbank did not provide an answer by publication, while Capitec and Discovery Bank did not respond to a request for comment.
TymeBank said that its client base is not active in this type of purchase and so it is not in a position to comment.
FNB declined to provide a direct answer and directed us to speak to the Reserve Bank.
“We approve and decline various transaction types based on a risk-based framework and in line with SARB’s policies on currencies and exchanges,” FNB stated.
MyBroadband asked the SARB for clarification on its sudden ban on credit card purchases of crypto assets, and it provided the following feedback:
“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,” it stated.
Such funds are transferred via the banking system as an Electronic Funds Transfer, the Reserve Bank said.
“However, 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.”