Exchange Control Circular No. 2/2020
Circular Reference: Exchange Control Circular No. 2/2020
Circular Date: 27 February 2020
Circular Status: Pending
Statement on the new capital flow management framework
As announced during the 2019 Medium Term Budget Policy Statement, the attention of Authorised Dealers and Authorised Dealers in foreign exchange with limited authority is drawn to the proposed new framework pertaining to the cross-border capital flows outlined in the 2020 Budget Speech. An extract is attached for ease of reference as Annexure A.
Following the review and benchmarking of the current exchange control system against best practices in other developing economies and fast-growing markets, the new capital flow management framework is hereby announced. This involves a shift from the current negative bias framework to a positive bias framework where all cross-border transactions will be allowed, except for those that are subject to the capital flow management measures and/or pose a high risk in respect of illegitimate cross-border financial flows.
Red tape on legitimate flows will be reduced whilst more robust measures will be introduced to detect, deter and disrupt illegitimate cross-border financial flows. As stated in Annexure A, legislative and regulatory proposals are being prepared to combat sophisticated financial crimes, unexplained wealth and suspicious financial flows.
The main features of the new capital flow management framework will, inter alia, include the following:
- a shift from exchange controls to capital flow management measures to regulate cross-border capital flows;
- a more modern, transparent and risk-based approvals framework;
- stronger measures to fight illegitimate financial cross-border flows and tax evasion;
- strengthen co-operation between the Financial Intelligence Centre, South African Reserve Bank, South African Revenue Service and other law enforcement agencies; and
- enhanced cross-border reporting requirements.
The new capital flow management framework and regulations will be implemented within a period of 12 months. This will, inter alia, allow for the drafting and finalisation of the new capital flow management regulations, implementation of the relevant tax amendments as well as further engagements with other relevant stakeholders.
Attached hereto as Annexure B, is a document outlining the proposed remaining capital flow management measures to be implemented within the above-mentioned period. In the interim, the existing exchange control system remains extant.
S E Mazibuko
Head of Department: Financial Surveillance