No exemptions: all CASPs must adopt ‘travel rule’ directive

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All crypto asset service providers (CASPs) must implement the “travel rule”, which comes into effect on 30 April, the Financial Sector Conduct Authority (FSCA) and the Financial Intelligence Centre (FIC) said last week.

The “travel rule” originates from the Financial Action Task Force’s Recommendation 16, which traditionally applies to wire transfers or electronic funds transfers. Under Recommendation 15 (new technologies), it is extended to crypto asset transfers.

The rule requires that specific information about the originator (sender) and beneficiary (recipient) of a crypto asset transaction must:

  • accompany the transaction;
  • be recorded and maintained by both the sending CASP and the receiving CASP; and
  • be made available to appropriate authorities upon request in a timely manner.

The main goal of the rule is to increase transparency and traceability in crypto transactions, thereby reducing the risk of financial crime.

In November last year, the FIC issued Directive 9, which sets out the “travel rule” obligations that apply to accountable institutions that engage in domestic and cross-border crypto asset transfers.

Read: FIC tightens crypto asset compliance with ‘travel rule’ directive

The Advisory published by the FSCA and the FIC draws CASPs’ attention to the following:

Registration with the FIC

CASPs located or created in South Africa that provide or engage in crypto asset transfers on behalf of clients living in South Africa or elsewhere are accountable institutions, as in defined in Item 22 of Schedule 1 to the Financial Intelligence Centre Act (FICA).

CASPs, as accountable institutions, are required to register with the FIC.

The FSCA declared crypto assets a financial product under the Financial Advisory and Intermediary Services Act in October 2022. Since December 2023, anyone who, as a business, provides advice or intermediary services in respect of a crypto asset is required to be licensed as a financial services provider by the FSCA. In addition, an FSP CASP is an accountable institution, per Item 12 of Schedule 1, and must register with the FIC.

An Item 22 CASP that also provides financial advisory or intermediary services in relation to crypto assets must register with the FIC twice – under Item 22 and under Item 12.

Foreign CASPs that provide financial advisory or intermediary services to clients living in South Africa are required to be licensed with FSCA and to register with the FIC as an Item 12 FSP CASP.

Operational requirements

CASPs and FSP CASPs must ensure they have the necessary infrastructure to meet their obligations under Directive 9 and FICA. They need to have adequate capital, financial and human resources, systems, and processes to implement the travel rule effectively and adhere to all FICA’s risk and compliance requirements in a timely manner.

CASPs must also comply with other applicable laws, such as those related to data protection or financial regulations. The Advisory recommends seeking independent legal advice.

A failure to adhere to Directive 9 may result in administrative sanctions under section 45C of FICA.

Exchange control implications

CASPs involved in cross-border transactions must also adhere to the Currency and Exchanges Act and its Exchange Control Regulations, specifically Regulation 10(1)(c) and Regulation 22.

No exemptions

Neither the FIC nor the FSCA can grant exemptions from Directive 9 or FICA. All CASPs, regardless of size or type, must comply fully.

Help is at hand

Moonstone Compliance offers compliance, consulting, and training options for accountable institutions of all types and sizes to help them meet the requirements of FICA.

We provide a wide range of services, from providing documentation to implementing a full compliance framework. You can select a combination of services and have them customised to suit your needs.

Click here to read more about Moonstone Compliance’s suite of FICA services or send us an online enquiry.

 

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