On 19 June 2020, The Minister of Finance, in terms of the Financial Intelligence Centre Act, 38 of 2001 (“FICA”), published proposed amendments to Schedules 1, 2 and 3 of FICA for public comment. The proposed amendments seek to align FICA with the current International Standards of the Financial Action Task Force ("FATF") as well as with recent legislative amendments.
Summary of the proposed amendments
Proposed amendments to Schedule 1:
Expansion of the Schedule 1 list of entities subject to the customer due diligence, risk management and compliance obligations set out in FICA (accountable institutions). These entities will include crypto asset service providers, high-value goods dealers and co-operative banks, among others; and
Technical amendments to the Schedule 1 list of entities, to align Schedule 1 with recent legislative changes.
Proposed amendments to Schedule 2:
The respective supervisory bodies currently responsible for supervising non-financial accountable institutions have been removed (e.g. the National Gambling Board which supervises the FICA compliance of persons who carry on the business of making gambling activity available). The supervision of non-financial accountable institutions will become the responsibility of the Financial Intelligence Centre.
Deletion of Schedule 3:
As a result of the inclusion of the "high value goods" category of entities in Schedule 1, Schedule 3 will be deleted and the current reporting institutions (motor vehicle and Krugerrand dealers) will now be included in the new category of high value goods dealers under schedule 1.
Inclusion of Crypto Asset Service Providers ("CASPs") in Schedule 1
As initially proposed in the "crypto asset policy paper" published by the Inter-governmental Fintech Working Group in January 2020, the proposed amendments to Schedule 1 of FICA will include a new item, "crypto asset service providers". The proposed amendment is in line with South Africa's obligation to adhere to FATF Recommendations 15 (New Technologies) which was amended in 2018 to address the treatment of "virtual assets". The proposed amendment comprises of two parts:
The term "crypto assets" is given the following definition:
"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)"; and
The list of CASPs that will be included in Schedule 1 to FICA, which provides as follows:
- exchanging a crypto asset for a fiat currency or vice versa;
- exchanging one form of crypto asset for another;
- conducting a transaction that moves 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.
Effect of the proposed amendment
The list of CASPs is extremely wide and will cover the majority of CASP businesses in South Africa (including services providers operating outside the country). The effect will be that all these businesses will be regarded as "accountable institutions" and will be required to comply with the various regulatory requirements and obligations imposed on "accountable institutions" by FICA, which include:
- Registering as an "accountable institution" with the FIC;
- Conducting a due diligence/KYC on all customers in accordance with a risk-based approach; and
- Developing, implementing and maintaining a Risk Management and Compliance Programme ("RMCP").
Comments are invited on the proposed amendments, which should be submitted to firstname.lastname@example.org by close of business on 18 August 2020.