A major shift in South Africa’s cryptocurrency landscape is set to take effect as the Financial Intelligence Centre (FIC) enforces a new Travel Rule from April 30, 2025. The regulation mandates that crypto asset service providers (CASPs) collect and share client details for transfers exceeding R5,000, with even smaller amounts flagged if suspected of money laundering or terrorism financing.
While some argue that crypto privacy has already diminished due to Know Your Client (KYC) policies, the latest directive further tightens regulatory oversight. The move aligns with international anti-money laundering measures and aims to improve transparency within digital asset transactions.
Compliance Challenges for Crypto Exchanges
Industry experts warn that the immediate impact will be increased compliance costs for crypto exchanges. Frank Leonette, CEO of AfriDax, highlights the operational challenges businesses will face.
“This new rule will reshape the operational landscape for the crypto industry,” he said. “CASPs are required to make significant investments in new technologies and infrastructure. Implementing systems to securely collect, verify, and share customer data, including wallet addresses and account details, will be essential. For many platforms, this will require upgrading existing infrastructure and integrating specialized Travel Rule solutions such as blockchain analytics tools and standard messaging protocols.”
The rule extends to transactions involving unhosted wallets, where individuals hold private control over their crypto assets. Both sending and receiving exchanges must apply risk-based policies to assess these transactions, further tightening security measures.
Efforts to Exit the Grey List
The Travel Rule is part of South Africa’s broader effort to remove itself from the Financial Action Task Force (FATF) grey list. The country was placed on the list in February 2023 for failing to meet international anti-money laundering and counter-terrorism financing standards. Crypto transfers have been identified as a vulnerability requiring stricter regulation.
Farzam Ehsani, CEO of VALR, South Africa’s largest crypto exchange by trading volume, acknowledges the necessity of compliance but stresses the need for regulatory refinements.
“The Travel Rule is no different, and the cost of compliance is certainly increasing,” Ehsani stated. “We do believe that changes will ultimately be made to make the Travel Rule more appropriate for the crypto asset industry. We are working with the industry and regulators to try to achieve this.”
Adoption of Global Standards
South Africa is following in the footsteps of the European Union and other jurisdictions that have already implemented similar regulations. Faadil Moti, CEO of crypto company 80eight, notes that many exchanges have started aligning with compliance requirements.
“Many exchanges have already started complying by registering on TRUST, which is a network that facilitates the secure transmission of required customer information between exchanges during crypto transfers,” said Moti. “While this may initially be seen as disruptive to local exchanges, it is an inevitable standard that all crypto platforms will eventually need to adhere to.”
The Travel Rule requires exchanges to collect and record details of both senders and receivers, including names, wallet addresses, and account numbers. This ensures that transactions can be traced similarly to traditional banking systems, marking the end of anonymity in crypto transactions.
Industry Concerns Over Innovation Restrictions
Despite the intended benefits, concerns remain about the broader implications of the rule. One of the key issues is the potential restriction of industry innovation due to strict exchange control policies. Moti warns that offshore transfers may now be flagged as externalization, potentially limiting industry growth.
“My view is that exchange control regulations need a thorough review to evolve alongside technological advancements, ensuring South Africa remains competitive in the global digital asset space,” he said. “At present, the framework feels outdated and may limit the industry’s potential rather than fostering its development.”
Implementing the Rule Across South Africa
Some industry players, like Luno’s South Africa country manager Christo de Wit, emphasize the complexities of executing the Travel Rule.
“Having successfully implemented the Travel Rule in multiple jurisdictions globally, Luno is keenly aware of the challenges that regulators and industry participants face when adopting a compliant solution,” said de Wit. “These challenges include selecting an appropriate technical framework and managing the significant time and costs required to build the necessary systems and processes.”
Omer Iqbal, CEO of FiveWest, believes that despite its challenges, the regulation will ultimately benefit the industry.
“By increasing transparency and traceability, it strengthens efforts against money laundering and terrorist financing,” he explained. “Though it introduces additional compliance burdens, slower transactions, and potentially a more restricted experience, it also legitimizes the industry.”
As the deadline approaches, CASPs must ensure their systems comply with the new regulations or face administrative sanctions under the FIC Act. The coming months will reveal how effectively South Africa’s crypto sector can adapt to this new regulatory framework.
