South Africa is making progress in addressing the factors that contributed to the country being placed on the Financial Action Task Force (FATF) greylist in 2023. Crypto industry leaders are playing their part in efforts to have the country removed from the list. This is according to Luno, a licensed financial service provider and South Africa’s largest cryptocurrency investment app with over 5 million local users.
Defining the regulatory landscape for the crypto industry was identified by FATF as one of the areas that required focus and action. The Financial Sector Conduct Authority (FSCA) subsequently declared cryptocurrency as a financial product and introduced a licensing regime. A large number of firms lodged applications during 2023 and the FSCA has awarded its first batch of licences.
Luno’s Global Head of Compliance and Anti-Financial Crime, Johan Hetzel, unpacks how the crypto sector is working with regulatory and law enforcement bodies.
Perception problem
“The crypto industry globally has been perceived as a sector with high levels of illicit activity even though less than 1% of all crypto activities are categorised as illicit, compared to much higher estimates (between 5-7%) in traditional financial services,” explains Hetzel.
In fact, crypto transactions enable a high degree of visibility as they take place, and are recorded permanently, on public blockchains (the technology that powers crypto). As such, a crypto transaction is a poor choice for conducting illicit activity.
“Luno also uses various tools to mitigate further against illicit activity, including the screening of customers and counterparties, and the monitoring of transactions for any potential indicators of suspicious activity. We continuously work proactively with authorities, regulators and industry players to identify trends and typologies and update our control environment,” says Hetzel.
Boosting capabilities in a relatively new sector
The South African Banking Risk Information Centre (SABRIC) believes collaboration with crypto players is key, as they are part of the payments ecosystem. “One of the key areas of collaboration is working with banks, crypto providers, law enforcement, and other government departments to help remove South Africa from the greylist,” says Juan Grobbelaar, who heads Stakeholder Identification and Acquisition at SABRIC.
Luno has been voluntarily registered with the Financial Intelligence Centre (FIC) since 2016, which requires it to comply with anti-money laundering (AML) legislation in South Africa, and includes aspects like submitting suspicious and unusual activities or transaction reports to the FIC.
Says Hetzel, “We’ve partnered with the FIC on various awareness initiatives involving the crypto industry, the risks in the sector and ways to mitigate risk. Examples of initiatives are the provision of training to law enforcement bodies to improve investigations into illicit crypto transactions.”
Luno has also proactively reached out to banking industry bodies to improve information sharing (within the confines of POPI Act compliance) and contribute to risk mitigation in terms of money laundering, terrorism financing and proliferation financing.
Recently, Luno was involved in the establishment of a working group with regulators, law enforcement and other crypto companies to improve awareness of crypto trends and typologies. Luno also participates in tertiary courses and conferences related to improving safety in the sector.
Grobbelaar reiterates the importance of collaboration and modernising payment systems by setting standards to ensure new entrants don’t introduce undue risk.
Proactively sharing tools to help reduce illicit transactions
Luno operates in markets that already have regulatory regimes in place. “This meant that compliance with the new South African requirements did not require a step-change in how we do things and allows us to share experiences from other countries in which Luno operates,” says Hetzel.
Various sessions have been held to demonstrate and showcase the tools that Luno uses to safeguard against money laundering, terrorism financing and proliferation financing.
Introductory sessions were held together with Chainalysis, a leading blockchain analyst, for regulators and law enforcement bodies focused on crypto investigations in both the public and private sectors, followed by events in Cape Town and Johannesburg.
“Information sharing is valuable to detect and prevent fraud and money laundering and to counter the funding of terrorism, as is training and capacity building within law enforcement, among bank clients and crypto providers,” adds Grobbelaar.
In addition, Luno actively engages with regulators like the South African Reserve Bank, the FIC and the FSCA (Financial Sector Conduct Authority) as they work to craft local regulatory frameworks.
