CASP’s considered “Accountable Institutions” in FIC Amendment from 19 December 2022
Recent developments surrounding crypto assets in the regulatory sphere have begun to commence quickly since the declaration of October 2022 confirming that crypto assets are to be considered a “financial product” under the Financial Advisory and Intermediary Services Act, No. 37 of 2022 (“FAIS Act”).
Since then, Government Notice No. 47596, dated 29 November 2022, has announced amendments to the Financial Intelligence Centre Act, No. 38 of 2001 (“FIC Act”), which, along with significantly broadening the scope of businesses within its ambit, will result in Crypto Asset Service Providers (“CASPs”) being classed as “Accountable Institutions” within Schedule 1 of the FIC Act with effect from 19 December 2022.
The amendment relating to CASPs reads as follows: -
“22. A person who carries on the business of one or more of the following activities or operations for or on behalf of a client:
(a) Exchanging a crypto asset for a fiat currency or vice versa;
(b) exchanging one form of crypto asset for another;
(c) conducting a transaction that transfers a crypto asset from one crypto asset address or account to another;
(d) safekeeping or administration of a crypto asset or an instrument enabling control over a crypto asset; and
(e) participation in and provision of financial services related to an issuer’s offer or sale of a crypto asset,
where “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, but 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).”
The consequence of the above is that CASPs will be governed by the FIC Act and required to implement certain internal policies in order to identify the proceeds of crime, combat money-laundering, and the financing of terrorism. The following practical implications of the FIC Act includes: -
1. Establishment and verification of the identity of persons;
2. Information which records must be kept, and the manner and place thereto;
3. Procedure to be followed when a transaction is reportable; and
4. Any further prescribed requirements.
In the Financial Intelligence Centre’s (“the FIC”) media release, dated 30 November 2022, a transitional supervisory approach will be taken by the institution. During the first eighteen months of the amendment taking effect (i.e., until June 2024), the FIC does not envisage issuing penalties for non-compliance to new accountable institutions. It will instead focus on conducting inspections, and issuing remedial administrative sanctions, among others, to correct identified areas of non-compliance and assist entities in improving its compliance.
Nonetheless, institutions should be cautious of non-compliance. The FIC or relevant supervisory body is authorised to issue administrative sanctions including a caution, restricting the business activities of the institution, a financial penalty of up to R 10 million for a natural person or up to R 50 million for a legal person per instance of non-compliance once given the opportunity to provide representations.