South African Crypto Asset Service Providers Must Comply with FIC Regulations to Tackle Financial Crimes

In a significant development that further entrenches regulatory oversight in the burgeoning field of digital finance, Crypto Asset Service Providers (CASPs) in South Africa find themselves at the forefront of a critical battle against financial crime. As these entities grow in prominence due to their facilitation of crypto asset exchanges, transfers, safekeeping, and administration, they also become potential conduits for illicit activities such as money laundering and terrorism financing.

The ease with which crypto transactions can cross borders, the pseudonymous nature of crypto asset ownership, and the ability to transact without face-to-face interactions makes cryptocurrencies appealing for criminal misuse. The anonymous funding through cryptocurrency exchanges, coupled with difficulty in identifying the original funding source, exacerbates the allure for those intent on washing their ill-gotten gains or funding nefarious activities.

Recognizing these inherent risks, the South African government, at the end of 2022, brought CASPs under the purview of the Financial Intelligence Centre Act (FIC Act). As a result, they have been designated as accountable institutions with stringent regulatory responsibilities aimed at safeguarding consumers and bolstering the fight against financial crimes.

CASPs are now required to register with the Financial Intelligence Centre (FIC)—South Africa's regulatory authority tasked with combating financial crimes—and adhere to several compliance standards outlined in the FIC Act. Registration with the FIC is the first crucial step, signaling the provider's commitment to upholding the integrity of South Africa's financial system. This process, which is free of charge, is facilitated through the goAML online registration system, housed on the official FIC website at www.fic.gov.za.

The registration process is thorough, necessitating the provision of supporting documentation such as certified identity documents of the compliance officer and an official authorization letter on the CASP's letterhead. Guidance on the registration process is made conveniently accessible through the goAML accountable institutions registration guide, along with the public compliance communication PCC 5D.

Once registered, a CASP's responsibilities extend to vigilant monitoring and reporting of any suspicious or unusual transactions to the FIC as dictated by section 29 of the FIC Act. There's no monetary threshold for reporting; any suspect transaction, irrespective of the amount, must be reported—ensuring even seemingly minor transactions don't fly under the radar. It's not the CASP’s duty to confirm that the funds are linked to criminality; a mere suspicion warrants a report in the form of a Suspicious Transaction Report (STR) or Suspicious Activity Report (SAR).

It's worth noting that the person filing an STR or SAR is granted protection under the FIC Act, with their identity kept confidential. Furthermore, these individuals cannot be compelled to testify about their reports in criminal proceedings unless they volunteer to do so. Moreover, they are prohibited from disclosing the fact that a report has been filed to anyone, including the involved client or associates.

Adherence to these regulations is imperative—not just from a legal standpoint but also to maintain the integrity of South Africa’s financial systems and the burgeoning crypto market. To ensure CASPs understand these expectations, sector-specific guidance can be found in PCC 57, which includes risk indicators pertinent to the crypto sector.

The FIC has underscored the imperative for all CASPs to register and begin fulfilling their compliance duties, which include the submission of risk and compliance returns as directed by FIC Act Directive 7. These returns are critical in maintaining a proactive stance against financial crimes. As this call to action reaches South Africa’s CASP community, the FIC remains a supportive resource, available through their compliance contact centre and online compliance query system.

South African CASPs stand now as gatekeepers against the economic risks posed by crypto assets, tasked with ensuring trust and safety in digital transactions—a role vital to the nation’s financial security and integrity.