Disappointment as FNB locks out crypto-currency accounts

Admire Moyo
By Admire Moyo
Johannesburg, 20 Nov 2019
The industry is awaiting crypto-asset policy clarity from South African regulators.
The industry is awaiting crypto-asset policy clarity from South African regulators.

South African crypto-currency exchanges have expressed disappointment over big four bank First National Bank’s (FNB’s) decision to close crypto-currency-linked bank accounts.

The bank notified the exchanges it will close accounts for the crypto exchanges next year, citing the risks the digital currencies present.

In a statement to ITWeb, FNB says: “FNB can confirm that it has given reasonable notice to terminate its banking services to virtual currency exchanges and intermediaries trading in virtual currency.

“FNB considers this to be a prudent course of action following a comprehensive review of the potential risks currently associated with these entities, particularly given that appropriate regulatory frameworks are not yet in place. The decision to terminate our banking services to these entities does not apply to individual customers.

“Due to the confidential nature of our customer relationships, FNB cannot provide any information on specific bank accounts.”

While other local banks still accept crypto-currency-related accounts, FNB’s move is not an isolated case, as in August, Barclays said it is no longer providing banking services to major crypto-currency exchange Coinbase.

“We can confirm that FNB has decided to close our account with effect from 31 March 2020, along with other crypto exchanges in South Africa,” says Marius Reitz, Luno GM for Africa.

However, he says Luno does not anticipate any impact to existing customers as it has other banking relationships in place to support deposits and withdrawals on the platform.

Reitz says the reason given by FNB to close crypto-linked accounts is due to the bank’s risk appetite, given the current absence of regulation of the crypto-currency industry.

Marius Reitz, Luno’s GM for Africa.
Marius Reitz, Luno’s GM for Africa.

Regulatory framework

In January this year, the South African Intergovernmental Fintech Working Group (comprising the South African Reserve Bank, Financial Intelligence Centre, Financial Sector Conduct Authority, South African Revenue Service and National Treasury) issued a “Consultation Paper on Policy Proposals for Crypto Assets” which envisions a regulated way forward for crypto-asset service providers in SA.

Later, in June, the Financial Action Task Force, a global standards-setting body of which SA is a member, issued “Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers” which similarly provides a regulatory framework for the new industry.

Reitz points out that none of the other South African banks are following the FNB route.

“Worth highlighting is that this scenario is not isolated to South Africa. We’ve seen similar situations taking place recently in other countries where Barclays, for example, ended its relationship with Coinbase,” he says.

“We are certainly disappointed in this decision by FNB. Regulation of crypto-currencies across the globe continues to be shaped and is one of the biggest challenges crypto-currencies face globally. We appreciate that banks will continue to assess their exposure to crypto-currencies in the absence of formal regulations.”

He adds it’s important to point out that customers who used Luno’s FNB account will not be affected and their current fiat deposits will continue to be safe with Luno.

“Our FNB account will still be operational and available for deposits and withdrawals until the end of March 2020. Customers who used our FNB account can deposit funds into our fully integrated Standard Bank account; they don’t have to open Standard Bank accounts. From April 2020 onwards, FNB customers will still be able to deposit funds into our Standard Bank account.”

Farzam Ehsani, co-founder and CEO of local crypto exchange VALR.
Farzam Ehsani, co-founder and CEO of local crypto exchange VALR.

Encouraging discussions

Farzam Ehsani, co-founder of local crypto exchange VALR, also confirmed FNB’s stance on crypto-currencies.

“FNB has communicated to us its decision to discontinue the provision of banking services to the entire crypto-currency industry, including all exchanges as well as other entities dealing or trading in crypto-currency.”

However, he says FNB banking facilities currently remain operational, and VALR is in discussions with FNB about the exact date of termination.

“We are encouraged by our discussions with South African regulators and other South African banks that FNB's decision remains an isolated case. We welcome the positive reception we have received from other South African financial institutions that have banked us and have recognised our significant investment and commitment to complying with local and international guidelines, regulations and laws.”

Ehsani is hopeful that future regulatory clarity will cause FNB to revise its decision, particularly in light of the increasingly favourable regulatory environment for the crypto-currency industry that is emerging both in SA and abroad.

“We remain firm in our belief that crypto-currencies have the potential to dramatically improve our financial system and we will continue with our goal in helping to build a financial system that recognises the oneness of humanity.”

iCE3X has also been informed that FNB will terminate its banking services, says Eugéne Etsebeth, iCE3X’s COO, adding the reason given is that virtual currency exchanges have a risk profile uncomfortable for FNB.

“All iCE3X customers that are FNB clients (and customers using other South African banks) are unaffected on our platform by the announcement. Customers have alternative options at iCE3X to deposit and withdraw funds. We look forward to the crypto-asset policy clarity from the South African regulators,” says Etsebeth.

Coindirect co-founder and COO Nic Haralambous comments: “The Coindirect business is unaffected by the recent banking news. We have multiple bank accounts that have been and continue to be operational.”