Strict Enforcement and Steep Penalties
Cryptocurrency exchange Luno has launched a formal challenge against a proposed overhaul of South Africa’s foreign exchange laws, arguing that the National Treasury’s plan to bring digital assets under an apartheid-era capital flow regime is unconstitutional because it bypasses Parliament. The challenge was detailed in Luno’s formal submission to the National Treasury on the Draft Capital Flow Management Regulations.
The draft rules, jointly published by the Treasury and the South African Reserve Bank for public comment, aim to modernize the country’s exchange controls. However, Luno warns that the proposal contains highly restrictive measures that threaten fundamental property and privacy rights.
As previously reported by Bitcoin.com News, the draft regulations seek to replace South Africa’s 1961 Exchange Control Regulations with a risk-based system focused on monitoring cross-border transactions and combating illicit financial flows. Violations could carry penalties of up to five years in prison, a fine of $53,000 (1 million South African rand), or both.
In its submission, Luno raised serious alarms over three specific enforcement provisions: asset seizure without court orders, forced liquidations and business-ending sanctions. Marius Reitz, Luno’s general manager for Africa, argued that changes of this magnitude must not be enacted via ministerial regulation.
“By proceeding 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,” Reitz said. “They should, in our view, have been enacted as a new Act passed through Parliament.”
Luno further charged that the National Treasury is contradicting the central bank’s own policy roadmap, which identifies stablecoins as potential future money capable of facilitating low-cost, borderless payments. Yet, Luno argues, the Treasury’s draft regulations treat all digital assets as identical, bringing bitcoin, stablecoins and tokenized real-world assets under the same restrictive capital flow framework.
“By attempting to capture every digital asset regardless of utility or economic function, Treasury risks unintentionally stifling South Africa’s broader blockchain technology sector,” Luno stated.
Proposed Solutions for Industry Growth
The exchange warned that the proposed reporting requirements for transactions above an unspecified threshold would create an “unmanageable administrative burden” for platforms and the state alike, given that large transaction volumes are processed within seconds.
“Our experience demonstrates that overly restrictive regulation simply pushes digital asset activity underground or offshore, beyond the reach of domestic regulators and tax authorities,” the company added.
Meanwhile, the crypto exchange’s submission also shared several key recommendations to resolve some of the friction points. First, Luno calls for the enactment of the final crypto capital flow framework through an Act of Parliament rather than executive regulation. It also recommends the designation of crypto assets bought and held on South African-licensed exchanges as onshore assets.
Luno wants regulations to distinguish between digital asset classes based on economic function while dropping the proposed forced-sale and warrantless asset seizure mechanisms. Non-resident international trading firms must also be allowed to continue operating in the South African market under appropriate registration to preserve market liquidity.
“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,” Reitz said.
