The financial crimes watchdog will intensify the monitoring of cryptocurrencies and other crypto assets as it fights to take South Africa off the Financial Action Task Force (FATF) greylist.
The executive manager for compliance and prevention at the Financial Intelligence Centre (FIC), Christopher Malan, told Business Times that it is now at the centre of a supervisory policy for crypto assets.
“We have an expanded mandate to supervise crypto assets. We have requirements to deal with that under FATF [requirements]. We need to ensure that we comply with recommendation 15, which covers crypto assets, and that all of the requirements pertaining to crypto are in place. We have to do that in consultation with the National Treasury.”
Malan said nonbank credit providers should take heed of tightened regulation and monitoring of crypto assets. As these decentralised digital assets grow in popularity, concerns about their potential use in organised crime have risen.
“The industry has been appealing for government recognition. In each jurisdiction, they have asked to be regarded as upstanding industry players and be given regulation. In 2022, when they became a designated accountable institution, they received recognition that they are now regulated.
“The challenge is there is still a long way to go to make sure that they are compliant. We're going back to the basics to say there are more than 80-odd crypto asset providers in the market. We ask if they have registered with the FIC, do we know who they are, and are they compliant.”
South Africa has set a January 2025 target to get off of the FATF greylist. The country was greylisted in January 2023 over deficiencies in rules relating to fighting money laundering, terrorism financing and proliferation financing.
In 2022, when they became a designated accountable institution, they received recognition that they are now regulated
— Executive manager for compliance and prevention at the Financial Intelligence Centre, Christopher Malan
Financial regulators around the world are asserting regulatory oversight over crypto assets as members of the public have increasingly fallen victim to crypto-related scams. The FTX cryptocurrency exchange collapsed in 2022 over a questionable valuation, sparking panic around the world and leading to a surge in customer withdrawals and losses running into billions of dollars.
Malan said the Financial Sector Conduct Authority (FSCA) last year began requiring crypto asset providers and other virtual asset service providers (VASPs) to obtain a licence to operate.
“The FATF requires us to understand the market dynamics and risks they bring to the South African market. Each country needs to conduct a sector risk assessment. We are close to issuing our draft sector risk assessment in consultation with the FSCA. We will issue that, we hope, in the next few weeks and that should give us a sense of identified threats, vulnerabilities and risks they must address.”
The FIC would soon issue a directive for all VASPs to adhere to the travel rule under recommendation 15 of the FATF for removal from the greylist. This requires VASPs to share the personal information of senders and recipients in virtual asset financial transactions.
“The amended FATF recommendation 15 requires that VASPs be regulated for anti-money laundering and countering the financing of terrorism purposes, that they be licensed or registered, and subject to effective systems for monitoring or supervision,” said an FATF update report in 2021.
Webber Wentzel's Lerato Lamola said that after reviewing the six key focus areas of the FATF, South Africa successfully defined crypto assets and brought them within the existing regulatory regime, which includes the licensing of providers.
“South Africa will now need to focus on the implementation, supervision and enforcement of the requirements. The law is there; now time will tell whether the regulators can successfully implement it in a manner that meets the FATF recommendation 15 and 16 standards,” she said.
“It is not a perfect fit, however it brings crypto into our regulatory regime,” Lamola said.
Luno country manager Christo de Wit said the tide of public sentiment was turning over cryptocurrencies, with Bitcoin approaching the more than R1m valuation last recorded in 2021, an all-time high.
“The difference is indicative of the rand’s devaluation against the US dollar over the last five years and adds legitimacy to the argument by many proponents that Bitcoin serves as a store of value,” he said.
De Wit added that the influx of institutional money through exchange-traded funds was evidence of a positive shift in how traditional investment institutions view cryptocurrencies.
“Another potential reason for the price uptick is the Bitcoin halving expected to take place mid-April 2024. Roughly every four years, Bitcoin rewards paid to miners are cut in half as a way to ensure that an infinite supply of Bitcoin doesn’t erode its value further down the line. Each previous halving has historically had a major impact on the price,” he said.
At a virtual media briefing this week, Malan said the FIC was struggling to get legal practices and estate agencies to file their risk and compliance returns (RCR) with the watchdog, as required by the FATF.
Out of 6,000 estate agent outlets and 16,000 offices of legal practitioners, the FIC has slightly more than 50% compliance from legal practices and under 45% from estate agencies. He warned that noncompliance would incur a R50,000 fine, which could escalate “several-fold”.
Malan said that if the May deadline for risk and compliance returns was not met, it would send a “near fatal” message that the economy and the institutions do not take the requirements seriously. Businesses in South Africa were vulnerable to a reputational shock globally, he cautioned.
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