South Africa’s FIC Unveils Draft Directive for Travel Rule Implementation; Crypto Industry Leader Issues Warning

The South African Financial Intelligence Centre (FIC) recently issued a draft directive on implementing the Financial Action Task Force’s (FATF) travel rule by accountable crypto asset service providers (CASPs). While the draft directive has proposed to ratify FATF’s Recommendation 16, some crypto entities, such as Valr, believe several factors will hinder the implementation of the travel rule.

In written remarks sent to Bitcoin.com News, Farzam Ehsani, co-founder and CEO of Valr, identified the minimum threshold quantum for crypto asset transfers as one of the factors likely to impede the rule’s implementation. Ehsani also pointed out the control or regulation of CASPs’ interactions with unhosted wallets and the uneven implementation of the travel rule worldwide as potential challenges to the successful implementation of the travel rule in South Africa.

In addition to listing the obligations of CASPs or originators of crypto asset transfers, the FIC’s Draft Directive 9 also outlines the policies and procedures that must be observed or adhered to when dealing with unhosted wallets. Furthermore, these policies and procedures must be incorporated into the risk management and compliance programs developed by CASPs, as mandated by Section 42 of the FIC Act.

Meanwhile, Ehsani also emphasized that the implementation of this recommendation is likely to lead to increased fees or costs for users. He stated:

“There is also an overarching concern that the implementation of the Travel Rule will substantially increase the cost of compliance for CASPs and these costs are ultimately borne by end-users. Finally, the FIC should put in place a substantial grandfathering period in order to allow CASPs to have sufficient measures in place to comply with the guidelines.”

The co-founder of Valr argued that implementing the FATF’s Recommendation 16 could lead some users to move to decentralized finance (defi) protocols. He said these protocols are “very difficult, if not impossible, to impose the travel rule upon.” The co-founder suggested that the potential for this shift should prompt regulators to consider the implications of any new regulation carefully.

According to the Financial Intelligence Centre (FIC), the draft directive is set to become effective on the date of publication in the Government Gazette. Following this, South African CASPs that fail to comply with the directive’s provisions will be “subject to an administrative sanction in accordance with Section 45C of the FIC Act.”

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