Major change for people who buy and sell crypto in South Africa

The Financial Intelligence Centre (FIC) has issued Directive 9, which will require crypto platforms in South Africa to identify the parties to a cryptocurrency transaction.

This is part of an effort to get off the Financial Action Task Force (FATF) greylist by complying with its “travel rule” for virtual assets.

The FIC explained that the travel rule related to the information that must be provided alongside cryptocurrency transactions, and the related records that must be kept.

This information, held by the ordering and beneficiary crypto asset service providers (CASPs), must be made available to authorities upon request.

“The primary purpose for implementing the travel rule is to help ensure that the transfer or receipt of crypto assets via CASPs is not used for money laundering, terrorist financing and proliferation financing purposes,” the FIC said.

The Travel Rule Directive will enter into force on 30 April 2025.

Under the directive, the sending CASP must transmit and store identifying information for the originator and beneficiary of crypto transactions.

For transactions below R5,000, only the sender and beneficiary’s full names are required, as well as the relevant crypto wallet addresses and account numbers.

Much stricter requirements are placed on transactions over this minimum amount.

If the sender is a person, the CASP must transmit and store their full name, ID or passport number, date of birth (if not an SA resident), and residential address or country of birth if an address is not readily available.

For senders that are businesses or another legal person, the CASP must transmit and store their registered name, entity registration number, and a registered address.

The CASP must also keep record of the sender’s crypto wallet address, and any additional crypto asset account number they might use on their platform.

Intermediary CASPs must ensure that all of the above information is transmitted to the next service provider in the transaction chain.

They must also take reasonable measures to identify cross-border crypto asset transfers that lack the required information outlined above.

Originating and intermediate CASPs must ensure this data is securely stored. This is to protect users’ privacy as well as the integrity and availability of the required information.

Both sending and receiving CASPs must verify the provided information if the transaction value exceeds R5,000 or if there is suspicion of money laundering, terrorist financing, or the illegal funding of weapons of mass destruction.

Recipient crypto asset service providers must also take reasonable measures, which may include post-event monitoring or real-time monitoring where feasible, to identify cross-border crypto asset transfers that lack the required information.

Regarding accepting transfers from private wallets, which the FIC refers to as “unhosted wallets”, the regulator directed CASPs to develop, document, maintain and implement effective risk-based policies and procedures to handle them.

These must include how and when additional information on the unhosted wallet is obtained where the CASP determines that there is a higher money laundering, terrorist financing or proliferation financing risk.

Altify founder and CEO Sean Sanders said it was inevitable that the travel rule would become mandatory in South Africa as the country seeks to get off the FATF’s greylist.

The FATF greylisted South Africa on 24 February 2023 for falling short on its eleven measures of a country’s effectiveness in combating money laundering and the financing of terrorism.

Its travel rule requires financial institutions, including those who deal in virtual assets, to provide relevant originator and beneficiary information alongside transactions.

This helps to prevent criminal and terrorist misuse, the FATF states.

“At Altify, we fully support regulatory developments that protect consumers and prevent money laundering and terrorist financing,” Sanders said.

However, Sanders expressed surprise at R5,000 reporting threshold.

“It may be the lowest out of any country worldwide,” he said.

“This will place extra compliance costs on investment platforms like us at Altify, which may result in slower transaction processing times and an overall worse user experience for our users relative to platforms operating outside of South Africa,” he warned.

For reference, the South African reporting threshold converted to US dollars is roughly $270.

Yet, in Japan, the travel rule reporting threshold is around $3,000 for cryptocurrency transactions, while Singapore’s is $1,115, and Canada’s is $710.

“I believe it would be more sensible to have a reporting requirement in crypto that matches the reporting thresholds for cash transactions in South Africa. It would be illogical for these amount to be different,” Sander said.