CRYPTO CORNER: South Africa’s crypto industry draws a line in the capital flow sand

It’s not every day that drama erupts in the South African crypto landscape, but 171 organisations have decided that enough is enough with the new SA Reserve Bank and FSCA regulations.

An industry lobbying coalition of 171 organisations (including domestic exchanges like VALR, Luno and AltCoinTrader), alongside nearly 4,000 individuals, has mobilised under the banner of the Crypto Asset Taskforce for Advancing Sound, Technology-Neutral Regulation (aka Catastrophe). It’s very clever.

Their objective is to challenge the National Treasury’s draft Capital Flow Management Regulations and the SA Reserve Bank’s (Sarb’s) draft Crypto Asset Manual for Cross-Border Activities. The campaign focuses on two key restrictions in the draft rules:

Bans on commercial cross-border crypto rails: South African businesses would be barred from using crypto assets for capital imports or exports, even when the underlying commercial activity is completely lawful.

The self-custody “one-way street”: While residents can transfer crypto from a licensed local exchange to a non-custodial private wallet, sending those funds back into a South African crypto-asset service provider is classified as non-permissible.

Rather than taking a purely adversarial stance against government oversight, Binance South Africa GM Hannes Wessels told me at The Gathering that industry participants must acknowledge the systemic balance-sheet pressures driving Treasury’s policies:

“You need to look at where the SA and the Treasury come from. What are they trying to achieve? For them, they’re trying to protect the rand and South African balance sheet because we also need to remember you got a Treasury balance sheet behind this which if this fails we need to issue a lot of debt to get this back.”

He also argues that regulators must distinguish between transactional payment rails and speculative capital flight, advocating for payment functionalities to be exempt from strict capital controls.

“I think we need to take the payments component of crypto and put that outside the line,” Wessels explains. “We can say, okay, well, you can’t abuse that to actually get exchange control, but payments need to fall out. So, that’s something we feel very strongly about.”

My take on the drama? Let’s be transparent: the campaign’s narrative is undeniably designed to protect industry profits and preserve domestic transaction volumes. However, dismissing their arguments would be a mistake.

Their critique highlights legitimate flaws in the proposed rules.