In its latest guidance note to the banking sector, the South African Reserve Bank (SARB) is advising banks that they do not have to terminate accounts with crypto assets providers.
In the guidance note, directed to:
- All banks
- Branches of foreign institutions
- Controlling companies
- Eligible institutions
- Auditors of banks or controlling companies
the banks Prudential Authority indicates that ‘it is aware that certain banks in South Africa have previously opted to terminate the bank/customer relationship with CASPs (crypto asset service providers) or discontinued banking services to CASPs.’
According to the note, local banks may have been put off by the lack of regulations to manage CASPs, as well as uncertainty about the risks the assets may pose to key security areas like money laundering and terrorist financing.
The bank noted:
“Risk assessment does not necessarily imply that institutions should seek to avoid risk entirely (also referred to as de-risking), for example, through wholesale termination of client relationships which may include CASP.”
– Prudential Authority, South Africa Reserve Bank
The bank went further to warn that de-risking is a practice that may contribute to the increase of risk events and threatens the financial integrity and adoption of a risk-based approach. The document indicates that cutting relationships with crypto asset providers ‘could potentially create opacity in the affected persons’ or entities’ financial conduct, and it eliminates the possibility to treat ML/TF/PF risks.’
In place of terminating relationships, the reserve bank body is asking local banks to assess and categorize risks with all their assets provider relationships so that they can determine the adequate response to implement and ensure security when it comes to the 3 security areas, namely:
- Money laundering (ML)
- Terrorist financing (TF)
- Proliferation financing (PF)
The bank calls for such a response ahead of de-risking, or eliminating risk completely.
Interestingly, the guidance note states:
“Banks may act as a conduit for funds linked to CASP activity and may play a role in customers wishing to purchase crypto assets or receive pay-outs for the sale of Crypto assets via fiat currency into their bank accounts.
Banks must ensure that they maintain adequate records in respect of all customer transactions, including:
- Fiat-to-fiat (i.e., from CASP customer’s bank account to the CASP bank account and vice versa)
- Fiat-to-crypto, and
- Crypto-to-fiat transactions
for a minimum period of five years or five years from the date of submission of a suspicious or unusual transaction report to the FIC.”
– Prudential Authority, Reserve Bank of South Africa (SARB)
The guidance note has been greeted with positive reaction among various crypto assets service providers within South Africa, with some saying South Africa is setting a standard in how the traditional financial sector interacts with cryptocurrencies and other innovations in fintech.
According to Marius Reitz, the General Manager, Luno Africa:
“In stark contrast to other central banks, the SARB and other authorities have shown an intent to lead the way, both within Africa and internationally, in terms of the guidance provided to the banking industry, thereby allowing the rapidly-evolving industry to flourish.”
– General Manager, Africa, Luno
Luno was one of the crypto asset service providers that were affected by bank account closures when the First Rand Bank (FNB) suspended banking services for the crypto exchange in 2020.
According to Marius, when banks deny services to crypto assets service providers, these services can go ‘underground’ or off-shore, where they will be kept off of regulations. As a result, banks are critical service providers for crypto enterprises.
