The Financial Intelligence Centre (FIC) will conduct inspections on crypto asset service providers (CASPs) in the 2024/25 financial year, according to the FIC’s recently published 2023/24 annual report.
CASPs is one of the sectors identified by the international anti-money laundering and countering the financing of terrorism (AML/CFT) community as potentially highly vulnerable for money laundering and terrorist financing (ML/TF).
Crypto assets were declared a financial product by the FSCA in October 2022, making it compulsory for CASPs to be licensed by the FSCA, registered with the FIC, and supervised by the FSCA and the FIC.
CASPs were brought into the South African regulatory fold as accountable institutions in terms of item 22 of Schedule 1 to the Financial Intelligence Centre Act (FICA) when amendments came into effect on 19 December 2022.
All CASPs that meet any of the activities designated in item 22 are required to register with the FIC before seeking any other financial sector licence or authorisation from a financial sector supervisor.
The inclusion of CASPs as accountable institutions is line with global requirements that the ML and TF risks of the sector’s products and services be recognised and addressed.
Read: How crypto asset service providers must comply with FICA
Legislative changes regarding CASPs resulted in the FIC and FSCA having dual oversight over CASPs in respect of compliance with ALM/CFT obligations.
The FIC and FSCA are collaborating and co-ordinating their supervisory efforts in this regard. This includes sharing registration databases and information relating to ML and TF risks.
The number of CASPs registered with the FIC came to 87 on 20 February. According to the 2023/24 annual report published this month, that number has grown to 89.
Read: FIC cracks down on non-compliant accountable institutions
The FSCA began the licensing process for CASPs on 1 June 2023. By 22 April 2024, it had received 374 licence applications. As of April, 75 institutions had been approved, with that number rising to 138 by the end of June.
Read: FSCA releases list of licensed crypto asset service providers
Any institution or person found to be undertaking crypto activities, as defined, without authorisation will be subject to regulatory action by the FSCA. This does not apply to institutions or persons who submitted their licence application by 30 November 2023 and are still awaiting the finalisation of their applications.
In its Regulatory Actions Report for 2023/24, the FSCA said its Enforcement Division has established an investigation team to deal specifically with persons or entities that did not apply for a licence or whose licence applications have been declined and who are conducting crypto financial services unlawfully. It said 30 cases were under investigation.
The FIC stated that, in addition to inspecting CASPs for compliance with FICA, it will continue to monitor their registration and financial intelligence reporting.
Earlier this year, the FIC released a draft sector risk assessment report for crypto asset service providers, inviting public comment. Submissions were accepted until 22 March.
Read: FIC invites comments on its draft risk assessment report for crypto asset service providers
The FIC explains that the draft report is designed to help businesses understand their ML and TF risks, and outlines measures the sector can adopt to mitigate and manage these risks.
The FIC states the final report will be published in the new financial year, “after taking into account comments received from role-players”.
