By Michelle Phillips, Arro Tax Manager
South Africa’s Exchange Control Regulations, 1961 are finally being repealed. National Treasury has published Draft Capital Flow Management Regulations, 2026 for public comment. The Draft represents a structural modernisation of a regime drafted for a cash‑and‑paper economy, now being asked to regulate digital capital, complex ownership structures and crypto‑based value transfer.
The 1961 Regulations were issued under section 9 of the Currency and Exchanges Act, 1933 and reflected the economic realities of their time. They focused on physical currency, foreign exchange, authorised dealers and a narrowly framed concept of “affected persons”. Capital movement was regulated through permissions and prohibitions, with limited conceptual flexibility.
The Draft Capital Flow Management Regulations, 2026 retain the same statutory foundation but adopt a different regulatory philosophy. According to the Gazette and accompanying media statement, the objectives are to align with Organisation for Economic Co‑operation and Development, and Financial Action Task Force standards, bring crypto assets into the framework, clarify exemptions and permissions, and impose administrative sanctions for non-compliance.
The language of “exchange control” is deliberately replaced with “capital flow management”. This signals a move away from rigid pre‑approval towards monitored capital mobility, supported by reporting, surveillance and enforcement.
Expanded and Modernised Definitions
Under the 1961 Regulations, an “affected person” was defined primarily with reference to a body corporate, foundation, trust or partnership (and an estate) that meets the 75 percent foreign ownership or economic benefit test. The terminology was dated and silent on several legal forms that have since become commonplace.
The Draft 2026 Regulations retain the 75 percent test but expand both form and scope. An “affected person” would include deceased estates, juristic persons, unincorporated associations of persons, trusts and partnerships operating or vested in the Republic. The use of “juristic person” replaces older corporate terminology and aligns exchange control language with modern South African statutory drafting.
This expansion is not incidental. As AW Oguttu observed in her 2022 analysis of loop structures, much of the historic confusion around exchange control arose from uncertainty about who constituted a “person” for regulatory purposes. The narrow and sometimes ambiguous framing of the old definitions made compliance difficult and encouraged technical disputes.
The Draft Regulations respond directly to this critique by enumerating legal forms more comprehensively and importing concepts from other regulatory statutes. The result is a broader, clearer net that reduces interpretive gaps, particularly for complex group structures and legacy arrangements.
Crypto Assets: From Legal Limbo to Explicit Regulation
The most striking difference between the two regimes is the treatment of crypto assets. The 1961 Regulations contain no reference to digital assets. This absence was exposed in litigation, most notably in Standard Bank of South Africa Limited v South African Reserve Bank and Others,where the High Court accepted that cryptocurrencies did not fall within the existing definitions of either “currency” or “capital”. That interpretive gap left crypto transactions in a form of regulatory limbo.
The Draft Capital Flow Management Regulations will close the gap decisively. Crypto assets are expressly defined as digital representations of value that rely on cryptographic techniques and distributed ledger technology. “Capital” is expanded to include anything of monetary value, expressly including crypto assets and intellectual property. At the same time, “currency” is defined to exclude crypto assets, ensuring conceptual clarity between legal tender and digital value.
Crypto assets are also explicitly included in the restriction on export from the Republic, alongside currency, gold and securities. In addition, the Draft introduces the concept of an “authorised crypto asset service provider”, linked to registration under the Financial Intelligence Centre Act and subject to National Treasury authorisation. This will bring crypto‑based capital flows squarely within the Capital Flow reporting and oversight framework, rather than leaving them to be regulated only indirectly through anti‑money laundering or financial sector legislation.
Enforcement, Offences and Administrative Process
The 1961 regime is fundamentally offence‑based, relying on criminal prosecution, with a general penalty on conviction of a fine or imprisonment for up to five years, or both, supplemented in certain cases by a value‑based fine linked to the transaction amount. The Draft Regulations retain criminal offences but recalibrate the sanctions framework. The general monetary penalty is increased materially, from R250,000 to a maximum of R1,000,000, while the potential imprisonment period of up to five years is preserved, and value‑based fines remain available where appropriate.
In parallel, the Draft significantly expands attachment and forfeiture powers to include money, crypto assets and other property. Importantly, it expressly characterises key enforcement steps, including seizures, attachments and forfeiture decisions, as “administrative action” subject to the Promotion of Administrative Justice Act, 3 of 2000. This signals an intentional move towards procedural fairness and transparency, marking a departure from the more opaque enforcement culture historically associated with exchange control.
Transitional Arrangements
Despite the imminent repeal of the 1961 Regulations, the Draft provides a carefully constructed transitional regime. Regulation 32 confirms that investigations, prosecutions, court proceedings and other processes initiated under the old regulations may continue and be finalised under that regime. More importantly for day‑to‑day compliance, all decisions, exemptions, permissions, Manual, circulars, directives and guidance notes issued under the old framework remain in force until revoked or replaced.
This continuity means that the Currency and Exchanges Manual for Authorised Dealer in force immediately before commencement will not fall away overnight. For businesses, financial institutions and advisers, the shift to capital flow management will be evolutionary rather than abrupt.
The Draft Capital Flow Management Regulations will consolidate decades of piecemeal reform into a single, modern framework that recognises digital assets, complex ownership and international regulatory expectations. However, exchange control reform should not be viewed in isolation. Changes to capital mobility have tax consequences, particularly where legacy structures and historic non‑compliance intersect with newer income tax and anti‑avoidance rules. The expanded definitions and crypto regulation in the Draft Regulations should therefore be read alongside developments in tax law and financial crime regulation.
Public comment on the Draft is open until 18 May 2026. While further refinements are possible, South Africa is unmistakably moving from a 1961 exchange control mindset to a 2026 Capital Flow Management system designed for a digital, globally integrated economy.
