National Treasury’s recently issued draft Capital Flow Management Regulations 2026 are presented as a decisive step into the modern global financial arena. They promise flexibility, international alignment and a more facilitative regime for investment.
In reality what is offered is not so much a relinquishing of controls, as the refinement thereof. More troubling is whether the proposals accord with the rule of law.
The stated intention is a promise of reform from the rigid exchange control system of 1961. It is an attempt to move away from a system where all cross-border transactions are prohibited unless expressly permitted, towards a more progressive framework.
This shift, if it came, would be both sensible and necessary, as South Africa’s existing exchange control regime is increasingly at odds with the realities of a globally integrated financial system.
But under the proposed framework capital flows remain subject to extensive oversight. Transactions must be reported, monitored and conducted through authorised intermediaries. Regulatory authorities retain wide powers to intervene, restrict or condition such flows. The result is a system in which capital is free only to the extent that it is compliant with an evolving and frequently opaque regulatory apparatus.
Defining capital
A central difficulty lies in the definition of “capital” itself. The draft adopts an expansive approach, encompassing not only traditional financial instruments but also crypto assets and any item capable of holding monetary value.
Such breadth creates a regulatory domain of unlimited scope. It enables bureaucrats to extend their reach into virtually every corner of private economic life.
From a constitutional perspective this raises immediate concerns. The rule of law requires that legislation be clear, precise, predictable and not subject to bureaucratic caprice. Individuals must be able to ascertain with certainty for themselves the legal consequences of their actions. Where definitions are overly broad or indeterminate, this becomes impossible.
By casting the net so wide, overly broad regulations fall short of this standard. A law that can encompass almost anything provides insufficient guidance as to what it actually governs.
What is most troubling is that the practical operations of the proposed system depend heavily on ministerial determinations, Treasury-issued exemptions and regulatory guidance that is yet to be promulgated.
In other words, the real content of the law is not fully contained within the law itself. It is deferred to future decisions by administrative staff.
The constitutional problem
This raises a fundamental issue under South African constitutional jurisprudence. The exercise of public power must be grounded in clear, ascertainable rules. Discretion must be carefully circumscribed. It cannot be so broad as to allow staff, however senior, to determine the content of the law on a case-by-case basis.
Where such discretion is insufficiently bounded, it violates the principle of legality – a fundamental component of the rule of law. The danger is not merely theoretical. A system that depends on discretionary approvals and exemptions invites inconsistency, unpredictability and, ultimately, arbitrariness.
The draft regulations also engage, in a profound way, the constitutional protection of property.
It has been suggested that capital controls do not implicate property rights because they do not involve direct expropriation. This is an erroneous belief. Property rights are not limited to the right to hold an asset. They include the rights to use, enjoy and dispose of it.
The ability to move capital, particularly across borders, is a primary aspect of that right of disposal. Restrictions on such movement interfere with the very substance of ownership.
Under section 25 of the constitution, property may not be arbitrarily deprived. Do the constraints imposed by the draft regulations constitute a form of deprivation?
There is a strong argument that they do. By conditioning the deployment of capital on compliance with an extensive regulatory regime, the state effectively limits the practical utility of property.
Inherently suspect
Underlying the proposed framework is an implicit assumption that the free movement of capital is inherently suspect. The ordinary economic actor is thus treated not as a participant in a lawful system, but as a potential source of crime to be managed.
This represents an important inversion of constitutional principle. In a society founded on freedom, individuals are presumed to act lawfully unless there is reason to believe otherwise. The burden rests on the state to justify interference, not on the individual to justify freedom.
The draft regulations reverse this presumption. They require individuals and firms to demonstrate compliance as a condition of exercising what should be ordinary incidents of ownership.
The inclusion of crypto assets within the regulatory framework is also revealing because it exposes a persistent underlying instinct to control.
By classifying crypto assets as “capital” and subjecting them to the same vague regulatory controls, the draft extends its reach into a domain characterised by innovation and decentralisation. The breadth of the proposed measures distinctly risks stifling legitimate activity and driving it beyond the reach of domestic oversight altogether.
None of this is to deny that the state has legitimate objectives. Preventing illicit financial flows, protecting the tax base and safeguarding financial stability are all important goals.
Disproportionate control
The constitutional question however, is not whether these objectives are valid, but whether the means adopted to achieve them are appropriate and proportionate.
In this regard, the draft regulations impose broad, systemic controls on all capital flows, rather than targeting specific high-risk activities. They rely on pre-emptive restriction rather than focused enforcement. As with the Financial Intelligence Centre Act, they significantly burden the many to address the misconduct of the few.
The constitution requires a more careful balance. Where less restrictive means are available, they ought to be preferred.
The draft regulations retain the essential character of the system they purport to replace. Control remains central and paramount. Discretion remains extensive. The movement of capital remains subject to officialdom’s continuing supervision.
Dr Brian Benfield, a retired professor from the department of economics at the University of the Witwatersrand, is a senior associate and board member of the Free Market Foundation.
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Top image: Rawpixel; Currency.
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