South African Banks Face Travel Rule Compliance Gap: Causes and Solutions

The rapid evolution of digital assets and cryptocurrencies has opened up huge opportunities, but it has also added layers of complexity as banks grapple with new regulations designed to combat financial crime. One of the latest of these is the Crypto Travel Rule, based on FATF Recommendation 16—a global standard aimed at fighting money laundering and terrorism financing (AML/CTF). The rule requires Virtual Asset Service Providers (VASPs) and financial institutions handling any virtual asset (VA) transfers to collect and share both sender and recipient details before or during a transaction.

South Africa stands out for its high crypto usage rates and is emerging as a crypto powerhouse. The country has the highest Bitcoin adoption rate globally, with over 5.8 million crypto asset holders and estimated 7.05 million users by 2026. According to Statista, the DeFi market in South Africa is projected to generate ~US$97.7 million in revenue in 2025, rising to ~US$101 million in 2026.

Related fraud has also surged dramatically. The country saw a 310% increase in identity fraud compared to the previous year. This leads to Travel Rule enforcement, along with other anti-fraud measures, becoming a priority for AML efforts in the country.

In South Africa, the Crypto Travel Rule came into effect this year, under Directive 9 issued by the Financial Intelligence Centre (FIC). However, institutions are still lagging behind in proper implementation. And if they don’t move quickly, they could face severe—and avoidable—consequences.

Why are South African banks lagging behind?

Not only South African banks are struggling. As of 2025, about 73% of surveyed jurisdictions globally (roughly 85 out of 117) have either implemented the Crypto Travel Rule or are actively in the process of doing so. Around the world, Virtual Asset Service Providers (VASPs) face significant challenges but are steadily moving toward compliance.

In South Africa, the Financial Intelligence Centre (FIC) mandated the Travel Rule from April 30, 2025, but local banks remain largely unprepared to meet the requirements. In practice, enforcement and full compliance have fallen behind legislative adoption.

“The rule ensures that personal data ‘travels’ with a transaction, whether it’s crypto or fiat, increasing transparency and traceability. You can think of the Travel Rule as a deep KYC on both the sender and the receiver of a virtual asset,” explains Tom Schoon, Sumsub’s Head of Partnerships for Africa. “Unfortunately, many local and African institutions operate with legacy systems that aren’t designed to handle the complex, real-time compliance checks required by the new regulation.”

The financial services landscape in Africa is also highly fragmented, with banks relying on a patchwork of service providers to meet various compliance needs. This fragmentation leads to inefficiencies, increased costs, and a higher risk of errors or gaps in compliance.

The dangers of failing to address the Travel Rule quickly could have long-term implications. Banks that don’t comply face fines from regulators, the risk of being shut out of virtual asset transactions, and growing competitive pressure from more agile, compliant players. In addition, unverified wallets and transactions heighten exposure to fraud and financial crime.

While no bank wants to be on the wrong side of the regulator, institutions have been slow to act, and many have a poor track record of building compliance infrastructure internally. Costly in-house experiments often end in delays and inefficiencies.

Challenging, yet necessary

The implementation of the Travel Rule presents real challenges for African banks. Compliance costs and operational complexity are major obstacles. In practice, South African banks must make calls to the national identity system at the Department of Home Affairs, which is known for periodic downtime. As a result, advanced blockchain technology often ends up sitting atop unreliable legacy infrastructure.

Privacy and data security concerns also loom large. The Travel Rule requires banks to transmit personally identifiable information (PII) across multiple parties, increasing the risk of data breaches and privacy violations.

Although no punitive measures have been taken yet, non-compliance could lead to significant fines, loss of licenses, or exclusion from international financial networks in the future.

Suggested read: Has the Travel Rule Delivered on Its Promise of Transparency?

Working around legacy systems: Modernizing financial infrastructure for compliance

Meeting the Travel Rule’s requirements will require banks to modernize how they handle compliance, particularly around secure identity verification and real-time data exchange.

Technically, this often means integrating core banking systems with compliance orchestration layers and APIs to streamline KYC/AML checks, sanction screening, and transaction monitoring. Such integration allows institutions to automate and centralize verification processes for both senders and receivers in virtual asset transactions, making compliance more efficient and less error-prone.

But technology is not a panacea here. Strategic decision-making is equally important. Financial institutions need to prioritize modernizing their compliance infrastructure, not because regulators demand it, but because it’s a competitive necessity.By addressing these gaps early, institutions in South Africa can reduce operational risk, stay ahead of future regulatory tightening, and build greater trust with customers and partners. In the long run, proactive compliance will be far less costly than forced catch-up.

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