Financial Intelligence Centre moves on crypto

The Financial Intelligence Centre (FIC) is moving on crypto after publishing the final guidance for crypto asset services providers. This means that these service providers have to report their transactions, which will help to prevent money laundering.

The FIC guidelines list crypto asset services providers as accountable institutions due to the risk that crypto assets can be used to facilitate money laundering and terrorist financing.

According to the FIC, crypto assets are vulnerable to abuse by criminals due to their potential use in cross-border transactions, the fact that crypto owners can use fictitious names and because transactions can occur seamlessly without being in-person.

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According to the FIC, someone is deemed a crypto asset service provider based on the economic activities or operations undertaken, rather than the technology, platform or type of crypto asset used for the transaction, says Lerato Lamola-Oguntoye, consultant and Analisa Ndebele, associate at law firm Webber Wentzel.

Crypto asset service providers

Some of the guidance includes an interpretation of the terminology used. Someone will be deemed a crypto asset service provider when he or she carries out one or more of the five activities listed below:

• Exchanging a crypto asset for a fiat currency or vice versa, for example where a client exchanges crypto assets for rands with the assistance of a service provider, or where a client buys crypto assets from a service provider whose business is the buying or selling crypto assets.
• Exchanging one form of crypto asset for another, for example where a client requests a service provider to take a specific crypto asset in exchange for other crypto assets and the service provider provides the services at a cost as part of its operations.
• Conducting a transaction that moves a crypto asset from one crypto asset address of account to another, such as when a client wishes to move crypto assets from one digital wallet to another through the service provider.
• Safekeeping or administration of a crypto asset or an instrument enabling control over a crypto asset, where the service provider offers safeholding of crypto assets or the private keys to the crypto asset for or on behalf of its clients.
• Participation in and provision of financial services related to an issuer’s offer or sale of a crypto asset, such as when a business determines that there will be an initial coin offering and the business offers its clients and prospective customers financial services (advice or intermediary services) related to the initial coin offering.

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Accountable institutions

Lamola-Oguntoye and Ndebele say once it is deemed as an accountable institution, a crypto asset service provider must register with the FIC. They add that it is important to maintain a risk-based approach when assessing whether a person qualifies as a service provider. 

However, those performing crypto asset activities in their personal capacity are excluded.

The Financial Action Task Force (FATF) published an update on the implementation of the FATF standards on virtual assets and virtual asset service providers (VASPs) in June 2023. Lamola-Oguntoye and Ndebele say its standards require countries to assess and mitigate their risks associated with virtual asset financial activities and providers.

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Virtual assets

The FATF started considering virtual assets in 2019 and published its updated guidance in 2021, highlighting these six key areas:

• clarification of the definitions of virtual assets and VASPs;
• guidance on how the FATF standards apply to stablecoins;
• additional guidance on the risks and tools available to countries to address the money laundering and terrorist financing risks in peer-to-peer transactions;
• updated guidance on the licencing and registration of VASPs;
• additional guidance for the public and private sectors on the implementation of the “travel rule”; and
• principles of information-sharing and co-operation among VASP supervisors.

“The FATF assessed the implementation of the 2019 guidance against the 98 jurisdictions under mutual evaluation. Based on the 98 FATF mutual evaluation and follow-up reports conducted, 75% of jurisdictions were found to be only partially or not compliant with the FATF’s requirements.”

They say the FATF stressed that jurisdictions must implement the travel rule, as it found that jurisdictions made insufficient progress on implementing this rule. The FATF Travel Rule requires VASPs to obtain details of the sender and recipient of a virtual asset transfer to counterparty VASPs or financial institutions, either during or prior to the transaction. Effectively, the rule requires VASPS to know who is initiating the transfer and who receives it.

The FATF is encouraging all member countries to rapidly implement its standards on virtual assets and VASPs, including the travel rule.