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Finance minister Enoch Godongwana has amended the Financial Intelligence Centre Act (FICA) annexure, designating crypto asset service providers as “accountable institutions”.
The amendment takes effect on 19 December 2022.
As accountable institutions, service providers will be required “to FICA” customers. Elsewhere in the world, this is called “know your customer” (KYC).
Basic FICA / KYC requires that accountable institutions collect and verify copies of customer identity documents and proof of address, like a utility bill.
South Africa’s FICA legislation also includes monitoring provisions to help prevent or prosecute criminal activity.
Globally, this is generally referred to as AML/CFT/CFP — short for anti-money laundering, countering the financing of terrorism, and countering the financing of proliferation of weapons of mass destruction.
These are important controls for countries to have in place, as South Africa recently learned when the Financial Action Task Force (FATF) warned that we could be greylisted over weaknesses in our systems.
Greylisting would make it more difficult for South Africans to transact overseas, increase transaction costs, and potentially significantly impact the country’s GDP.
Among the issues the FATF highlighted was that South Africa had been slow to regulate cryptocurrency, potentially allowing criminals and terrorism financiers to use the technology unchecked.
Godongwana’s amendment defines crypto asset service providers as exchanges, custodians or wallet providers, and those facilitating any new token offer or sale.
The exact definition is someone who engages in the following activities on behalf of a client:
“Crypto asset means a digital representation of perceived value that can be traded or transferred electronically within a community of users of the Internet who consider it as a medium of exchange, unit of account or store of value and use it for payment or investment purposes,” the amendment reads.
The FICA definition specifically excludes stablecoins and mirror assets:
“But [the meaning] does not include a digital representation of a fiat currency or a security as defined in the Financial Markets Act, 2012 (Act 19 of 2012).”
Farzam Ehsani, the CEO of South African exchange VALR, welcomed the amended FICA schedules.
Ehsani said the amendment increases AML/CFT/CPF standards.
Godongwana’s amendment comes after the Financial Sector Conduct Authority declared crypto assets a financial product in South Africa.
Exchanges and other cryptocurrency service providers will be required to apply for a Financial Service Provider licence between 1 June 2023 and 30 November 2023.
Currently, the declaration exempts node operators, cryptocurrency miners, and NFTs and NFT platforms from requiring a licence.
Anti-Money Laundering (AML) Combating the Financing of Terrorism (CFT) Countering the Financing of Proliferation of weapons of mass destruction (CFP) Enoch Godongwana Farzam Ehsani Financial Action Task Force (FATF) Financial Intelligence Centre Act (FICA) greylisting Headline Know Your Customer (KYC) VALR
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