Crypto not yet subject to exchange controls

In a landmark ruling, the Pretoria High Court has clarified that cryptocurrencies do not fall under South Africa's exchange control regulations. The judgment came in a case between Standard Bank and the South African Reserve Bank (Sarb), settling long-standing uncertainty around the regulatory treatment of digital assets.

The court ruled that cryptocurrencies do not qualify as "capital" or "currency" under the country's exchange control framework. This means that crypto assets are exempt from the strict oversight typically applied to cross-border transfers of capital.

"This judgment offers long-awaited clarity for the crypto industry, confirming that cryptocurrency transfers out of South Africa do not require Sarb approval," said a legal analysis from law firm Baker McKenzie. However, experts caution that this relief may be temporary, as future legislative changes could reintroduce regulatory controls.

"This brings an end to a debate in the South African crypto asset industry on whether cryptocurrencies require exchange control approval for their export," the analysis noted. "But based on prior similar judgments on Exchange Control Regulations, this reprieve may be short-lived."

Until the law is formally amended, the ruling makes clear that cryptocurrency transfers are not governed by exchange control rules in South Africa. "The decision underscores the pressing need for legislative reform to provide clarity and certainty in this rapidly evolving area," commented Desiree Reddy and Ntokozo Ngubane of Norton Rose Fulbright.

The case arose after Standard Bank sought to recover funds it lent to Leo Cash and Carry (LCC), which was liquidated in 2022. Standard Bank had extended a R40 million overdraft facility to LCC in January 2020 on the condition that LCC move its banking operations to Standard Bank, close its Nedbank account, and place R10 million collateral in a money market call account.

LCC drew down on the overdraft and immediately transferred R10 million to settle its Nedbank overdraft. The dispute eventually led to the landmark legal clarification regarding the treatment of cryptocurrencies under South Africa's exchange control regulations.

This ruling marks a significant shift in the regulatory landscape, signaling a more flexible approach toward digital assets - at least until legislative reforms are enacted.