The Financial Action Task Force (FATF) Travel Rule for digital currency took effect in South Africa on 30 April, an important milestone in bringing transparency to the country’s digital assets sector.
By Bradley Elliott, CEO of RelyComply
With South Africa still working towards exiting the FATF grey list, Crypto Asset Service Providers (CASPs) must ensure compliance with the new rule.
The Travel Rule forms part of the global effort to address financial crime in the cryptocurrency and digital asset sector through more rigorous Know Your Customer (KYC), Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations. Far from seeing increased regulation as a burden, CASPs should welcome the legitimacy and clarity it brings to a maturing market.
What the Travel Rule will mean for CASPs
Adopting the Travel Rule aligns South Africa with global standards for regulating the crypto industry. It requires all CASPs or obliging entities to audit and share users’ data with other CASPs or financial institutions.
Users will also be prompted to give the necessary information before withdrawing crypto assets of any value. Here’s what it will mean for local crypto exchanges and other institutions that handle digital assets:
- The rule focuses on data sharing. It promotes and requires further due diligence from the originator and beneficiary CASPs. Before a transaction is made, the former must ascertain whether their counterparty has robust compliance measures in place and whether it’s a sanctioned or blacklisted financial institution.
- For transactions over R5,000, a user will need to provide the beneficiary CASP with the originator’s name, their ID number (for citizens) or passport number and date of birth (for non-citizens or residents), address, a distributed ledger address if attached to the transfer, a crypto asset account number, and a unique transaction reference number.
- For payments under R5,000, less data and less rigorous ID verification will be required. However, information will still need to be checked to see if money laundering is suspected or if the transaction includes a region declared high-risk by FATF.
- Intermediary CASPs must ensure that all domestic and cross-border crypto asset transfer information is transmitted to the receiving CASPs or additional intermediaries in the payment process.
Keeping up with an evolving regulatory landscape
FATF crypto regulations have been a work in progress for many years, and the Travel Rule has garnered strong support from G7 countries in the wake of AML failures at major exchange FTX and Silicon Valley Bank. South African regulators have closely followed global trends, acknowledging that digital assets are here to stay and that they create new fincrime threats.
The Financial Sector Conduct Authority (FSCA) recognises CASPs as a financial product under the Financial Advisory and Intermediary Services (FAIS) Act, with advisory institutions or intermediary crypto services required to apply for a licence. The FSCA and the Financial Intelligence Centre (FIC) will be the supervisory bodies for the Travel Rule. Non-compliant CASPs will be subject to an administrative sanction per the FIC Act.
The Travel Rule has the potential to usher in a new age of legitimacy for South Africa’s crypto sector. Addressing suspicious digital transactions and dangerous actors efficiently and effectively will help build confidence in the digital asset and crypto sector among regulators, banks, consumers, and businesses. It will also safeguard the reputation of the broader financial ecosystem.
The Travel Rule is the start of addressing money laundering and terror financing in crypto. CASPs, like other financial institutions, will need to constantly evolve KYC or AML compliance protocols to address new threats and rules.
Fortunately, the regulatory technology (RegTech) market already offers flexible and affordable business solutions for digital currencies, distributed ledger technology, and crypto providers.
Integrity and compliance costs can be saved through relationships with vendors offering customisable end-to-end systems for AML, from onboarding to round-the-clock monitoring.
No new industry can thrive without some guardrails to secure the public interest and reduce societal risks. RegTech solutions provide a safety net for CASPs as they innovate and bring creative new offerings to market.