More checks for crypto providers?
• Move to fight illicit financial activity
SA crypto service providers are set to come under increased scrutiny by the Financial Action Task Force (FATF), which reportedly wants to conduct annual checks worldwide to ensure the sector is doing enough to combat illicit financial activity. The Paris-based FATF first put together standards for virtual assets in 2019. However, Al Jazeera reported on November 7 that implementation had been so slow the watchdog now wants to do annual checks.
SA crypto service providers are set to come under increased scrutiny by the Financial Action Task Force (FATF), which reportedly wants to conduct annual checks worldwide to ensure the sector is doing enough to combat illicit financial activity.
“We are getting a lot of inquiries from largely SA crypto asset service providers and aspirant providers wanting to be seen to be doing things correctly,” says James George, compliance manager, Compli-Serve SA. “They want to get Fais [Financial Advisory and Intermediary Services Act] licensed, they want to register with the FIC [Financial Intelligence Centre] as an accountable institution and then wait for D-Day in June next year when local crypto providers can get licensed.”
Paris-based FATF first put together standards for virtual assets in 2019. However, Al Jazeera reported on November 7 that implementation has been so slow the watchdog now wants to do annual checks to see if countries are applying regulations on anti-money laundering and combating terrorism financing to crypto service providers.
Introducing annual crypto checks could add a far more onerous regulatory burden on countries more accustomed to
FATF’s mutual evaluation reports that traditionally run on 10-year cycles.
While FATF has since responded to the Al Jazeera, saying it has not yet changed how it monitors crypto assets or how it adds countries to its greylist, it also did not deny the article. That has prompted players in the crypto sector to start looking at how they can bolster their antimoney laundering and combating the financing of terrorism measures.
LESS TIME
Crypto trading firm Luno appointed Johan Hetzel as regional head of compliance for Africa in October with his immediate focus being to bolster the platform’s compliance standards.
“The FATF hasn’t made any decision to move to annual checks but if they did do that it would give countries a lot less time to enact the required standards,” said George. “SA is on the threshold of being greylisted anyway so failure to comply with more stringent crypto rules just adds another dimension of required compliance.”
FATF is already expected to greylist SA early in 2023 for having inadequate antimoney-laundering and combating the financing of terrorism measures and while its increased scrutiny of the crypto sector won’t necessarily affect that assessment, it is another thorn in the side of local policymakers, legislators and regulators. While local policymakers are doing what they can to prevent SA being added to the greylist when FATF makes its final decision on the issue in February 2023, most commentators think greylisting is inevitable given that there is limited time to take mitigating steps before the looming deadline.
FATF has already said that of the about 200 countries affiliated to it only 60 are regulating their crypto sectors while more than 50% have not started the process to implement more stringent oversight. FATF now wants to implement a travel rule that will see all crypto transactions tracked to prevent their misuse by financial criminals.
FATF’s travel rule requires crypto service providers to maintain information on senders and beneficiaries with all transfers, as is the case with bank transfers.
The organisation conducted its third review of the worldwide implementation of its 2019 recommendations for virtual assets in June 2022 and found that most countries had made only limited progress in implementing the travel rule.
“SA crypto providers are nowhere near being ready to comply with that travel rule yet,” says George. “That’s really the big-ticket item but it will require additional legislation being passed, which is likely to come through during the course of next year.”
With digital assets having last month been declared financial products under the Financial Advisory and Intermediary Services Act, crypto asset service providers will soon have to be licensed. While a general exemption is in place to allow them to continue doing business, licence applications will start being processed from June 1 to November 30, 2023.
George says that while that is a positive in the sense that SA has kicked off the crypto supervision plan, that licensing will only be completed by November 30 2023 means implementation of the process is lacking. Technically that would count against SA in a FATF crypto evaluation.
“Crypto is very much on the regulatory radar but SA is yet to enact robust crypto regulations and standards though that’s probably coming down the pipeline,” he said.
“Hopefully by the end of the year crypto providers will be deemed accountable institutions if schedule one of the Fica act is changed in time.
“SA is going to have to focus a lot more on crypto regulation but that’s still not necessarily going to affect the imminent greylising of SA which is still very likely.”