South African Banking Regulator: ‘De-risking’ Crypto Firms Potentially Creates ‘Opacity in Financial Conduct’

The Prudential Authority in South Africa, South Africa’s largest banking regulator, stated that some banks’ decisions about separating from crypto entities could ‘pose a risk to financial integrity overall’. The Prudential Authority, South Africa’s main regulator of the banking industry, suggested that banks could avoid cryptocurrency entities entirely to weaken their risk management processes.

guidance note was sent by Fundi Tshazibana to financial institutions. It stated that the removal of crypto entities like exchanges from the bank system “can potentially create opacity within the affected persons’ or entities’ financial conduct.” This guidance note, which is eight pages long, also states that there are no risks of money laundering, terrorist financing and proliferation financing.

Tshazibana’s remarks come six months after reports surfaced that South African financial institutions had sent account termination notices out to clients who offered automated cryptocurrency arbitrage. As reported in late 2021 by Bitcoin.com News, Standard Bank insisted that the bank’s decision to terminate services to crypto entities was made to ensure compliance with regulations.

The guidance note must be sent to each institution’s independent auditors. However, the CEO urges banks to conduct the appropriate risk assessment for every crypto asset (CA), or crypto asset service provider. Tshazibana explains:

Banks should be able to risk-categorise CA/CASP clients by conducting a risk assessment. This will help banks determine the appropriate level [money laundering], terrorist financing, and proliferation financing] risk management steps necessary.

According to the CEO, the decision to terminate or de-risk service should be made only after the risk posed by a customer or business is too high to manage.

“A Great Step Forward For Crypto”

Farzam Ehsani (CEO of South African crypto exchange platform Valr) tweeted that the Prudential Authority’s most recent guidance note indicated it understands the value of monitoring crypto transactions. Ehsani also shared his thoughts about the guidance note’s implications for the crypto industry. He said:

“This is, in my opinion, a huge step forward for crypto, South Africa, and the banks themselves. This is especially important for crypto companies that are responsible in building products that serve customers. There are risks and bad actors in crypto, just as they do elsewhere. Banks won’t immediately begin banking all crypto-related companies.

Valr boss, meanwhile, argued that South Africa’s latest guidance note would likely lead it in the right direction to allow innovation and new technologies to thrive there.

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