Cryptocurrency trade regulated under The Financial Intelligence Centre Act.
I INTRODUCTION
Bull markets and bear markets, all-time highs or all-time lows, either you’ve made money or lost money, but one thing remains true and constant, cryptocurrencies within South Africa are officially here to stay, and whether you’re a sceptic or believer, understanding the future of currency within South Africa as a business or individual is essential.
This article will discuss the amendments made to the Financial Intelligence Centre Act of 2001 (FIC Act) and how cryptocurrency service providers (CSP’s) will now be regulated within South Africa, moving forward as of the 19th of December 2022.
II CRYPTOCURRENCIES, A BRIEF DEFINITION FOR SOUTH AFRICANS.
The first thing that must be understood is that cryptocurrency, sometimes referred to as crypto, is very much like the Rand (ZAR) regarding its ability to hold financial value, the difference however between the two is that cryptocurrencies exist digitally or virtually, and use cryptography to secure transactions. Cryptography, simply put, ensure that your use of crypto whether it is buying, investing or gifting is secured through the use of code and that only those who are intended can receive and process it.
Furthermore, unlike the Rand, there is no central issuing or regulatory authority, it uses a decentralized blockchain system to permanently record transactions, which means every transaction, no matter where in the world, is recorded and stored permanently for later reference or proof of transaction.
So whether you are a large corporate in the heart of Sandton or a natural person in the rural farms of Mpumalanga, cryptocurrencies are accessible and the Financial Intelligence Centre Act has created a safer environment for their use.
III CRYPTOCURRENCY AND THE FINANCIAL INTELLIGENCE CENTRE ACT
The one question that has loomed over the minds of many South Africans, is the aspect of integrity and protection regarding cryptocurrency service providers (CSP’s) within the nation, it is no secret that the abuse of crypto assets, through the exploitation of clients or liquidation of providers has created a rather sceptical environment for its use, the new amendments to the FIC Act, intend to hold CSP’s liable and create certain standards that protect crypto asset holders.
The amended sections of the Act ensure that CSP’s are deemed accountable institutions, to avoid the aforementioned and other problematic drawbacks.
The Act creates a system of accountability and security by instituting the following requirements, first, CSP’s are to verify the identity of their prospective client, before any form of crypto assets purchase or trade can begin. This creates a twofold safety net, on behalf of the provider and prospective client, and ensures that there is the necessary transparency needed, that avoids financial fraud and laundering. Secondly, CSP’s are to ensure ongoing identity verification, this solidifies the first requirement. Thirdly, CSP’s are to submit reports directly to the Financial Intelligence Centre, ensuring a form of oversight and further accountability.
IV CRYPTO SERVICE PROVIDERS AND THE FINANCIAL INTELLIGENCE CENTRE ACT
The requirements presented by the amendments apply to a broad majority of CSP’s within South Africa, paragraph 22 of the Notice establishes any party who is involved within the following fields of practice, for themselves or on behalf of another, shall be regarded as an accountable institution under the Act, these being those who practice in;
- Exchanging a crypto asset for a fiat currency or vice versa;
- exchanging one form of crypto asset for another;
- conducting a transaction that transfers a crypto asset from one crypto asset address or account to another;
- safekeeping or administration of a crypto asset or an instrument enabling control over a crypto asset; and
- participation in and provision of financial services related to an issuer’s offer or sale of a crypto asset.
Furthermore, CSP’s will now have the same duties and responsibilities that other established financial entities have had in the previous years, the two most important being, the duty to report suspicious transactions and the duty to formulate and implement internal rules which allow for compliance with the FIC Act as stipulated under chapter 3.
V WHAT DO THE AMENDMENTS MEAN FOR SOUTH AFRICANS?
With cryptocurrencies already established as an official currency within the nation, the legislature is, by all means, trying its best to regulate the use and trade of the asset, to ensure that day-to-day South African people and the larger financial institutions are protected from the dangers of anonymous trading that could severely impact the already delicate fabric of our economy.
The amendments have created a safer environment for those intreated and willing to explore the vast nature of cryptocurrencies, in all their forms.
ABOUT BAM LAW
If you have any questions related to cryptocurrencies, blockchain and e-commerce, the team at BAM LAW are qualified to assist. Email – Allan@bamlaw.co.za & Kim@bamlaw.co.za
