South African crypto crackdown

A proposed new rule regarding crypto transactions in South Africa could see cryptocurrency services face increased scrutiny and stringent information-reporting obligations.

This is according to Hannes Bezuidenhout, VP of Sales for Africa at Sumsub, a global full-cycle verification platform in the crypto, fintech, and e-commerce industries.

Bezuidenhout said a proposed directive by the Financial Intelligence Centre calls for crypto asset service providers (CASPs) and intermediaries facilitating crypto transfers to face tougher requirements for client information collection and sharing on transactions above R5,000. 

The directive introduces a ‘travel rule’ mandating CASPs and crypto asset financial service providers (FSPs) to exchange specific information during digital asset transactions.

Bezuidenhout said the ‘travel rule’ implementation status in South Africa has been in limbo for a long time. 

“Finally, the recently-published consultation document, a directive, showed the fundamental requirements and conditions of the Travel Rule, such as collecting information, verifying it and promptly transmitting it to the counterparty, and conducting due diligence on the ordering CASP counterparty.” 

“In light of this, it is imperative that South African firms involved in crypto transactions seriously consider the Travel Rule requirements.”

However, there are several unclear points in the directive that do not appear to be covered by the consultation part. 

In particular, CASPs may face ambiguity surrounding differences in “domestic” and “cross-border” transfer requirements. 

“Such differences affect most requirements in the directive, such as the scope of the data to be transferred, actions for monitoring missing or incomplete information, the necessity to check the accuracy of beneficiary information and more,” he explained.

“Preparing for compliance is crucial. While the consultation phase is underway, requirements may still change. Therefore, CASPs should not ignore the opportunity to participate.” 

However, he said the main direction of the requirements is already clear, and firms must, therefore, be ready to make some changes.

This will include implementing solutions to identify CASP-to/from-CASP and CASP-to/from unhosted wallet transactions. 

“These solutions should also be able to determine the recipient CASP, carry out counterparty due diligence, and screen for sanction breaches,” he said. 

“The onus is also on crypto platforms to pay attention to whether the Travel Rule solution provider can ensure data protection during transmission.”