Reserve Bank of South Africa advises financial institutions to ‘not close crypto accounts’

In its latest guidance note to the banking industry, the South African Reserve Bank (SARB) advises banks not to terminate accounts with crypto asset providers.

In the guidance note, addressed to:

  • All banks
  • Branches of foreign institutions
  • Control companies
  • Eligible establishments
  • Auditors of banks or control companies

the Banking Prudential Authority states that “it is aware that some banks in South Africa have previously opted to terminate bank/customer relationship with CASPs (Crypto Asset Service Providers) or have discontinued banking services to CASP”.

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SEE ALSO: South Africa Reserve Bank (SARB) Governor advises regulators to move with financial markets

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According to the note, local banks may have been discouraged by the lack of regulation to manage PSAPs, as well as uncertainty about the risks the assets may pose to key security areas like money laundering. and the financing of terrorism.

The bank notes:

“Risk assessment does not necessarily imply that institutions should seek to avoid risk altogether (also called risk reduction), for example, by terminating customer relationships en bloc, which may include CASP.”

– Prudential Authority, Reserve Bank of South Africa

The bank went further warning that risk reduction is a practice that can contribute to increased risk events and threatens financial integrity and adopting a risk-based approach. The document states that severing relationships with providers of crypto assets “could potentially create opacity in the financial conduct of the individuals or entities involved, and this eliminates the ability to address ML/FT/PF risks.”

Instead of terminating relationships, the Reserve Bank body is asking local banks to assess and categorize risks with all of their asset provider relationships so that they can determine the appropriate response to put in place. implement and ensure security with regard to the 3 security areas, namely:

  • Money laundering (ML)
  • Terrorist Financing (FT)
  • Proliferation Financing (PF)

The bank calls for such a response before reducing risks or completely eliminating risks.

Interestingly, the guidance note states:

“Banks can act as a conduit for funds related to CASP activity and can play a role in customers wishing to purchase crypto assets or receive payments for the sale of crypto assets via fiat currency to their bank accounts.

Banks must ensure that they keep adequate records of all customer transactions, including:

  • Fiat to Fiat (i.e., from the CASP customer’s bank account to the CASP bank account and vice versa)
  • fiat to cryptoand
  • Crypto to fiat transactions

for a minimum period of five years or five years from the date of transmission of a suspicious or unusual transaction report to the FIC.

– Prudential Authority, Reserve Bank of South Africa (SARB)

The guidance note was met with a positive reaction among various crypto asset service providers in South Africa, with some claiming that South Africa is setting a standard in how the traditional financial sector interacts with cryptocurrencies. currencies and other fintech innovations.

According to Marius Reitz, Managing Director of Luno Africa:

Unlike other central banks, the SARB and other authorities have shown their intention to lead the way, both in Africa and internationally, in terms of guidance provided to the banking sector, thereby enabling the industry rapidly changing to thrive.

– Managing Director, Africa, Luno

Luno was one of the crypto asset service providers that was impacted by bank account closures when First Rand Bank (FNB) suspended banking services for the crypto exchange in 2020.

According to Marius, when banks deny services to crypto asset service providers, those services can go “underground” or offshore, where they will be kept out of regulation. As a result, banks are essential service providers for crypto businesses.

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RECOMMENDED READING: Reserve Bank of South Africa Among 4 Central Banks Building ‘Project Dunbar’ – A Common Digital Currency Platform

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