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Cornered banks to rethink unbanking crypto accounts

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 19 Aug 2022

Local banks say they are studying the South African Reserve Bank’s (SARB’s) Prudential Authority’s (PA’s) guidance note to the big banks to start working with crypto players.

This, as the banks may be forced to change their stance on how they handle the accounts belonging to crypto-currency exchanges.

Most of the banks previously closed the accounts belonging to crypto players citing the potential risks they pose, mostly relating to money-laundering, terrorist financing and proliferation financing.

However, in a turn of events, the PA’s guidance note urges the banks to start engaging with the crypto asset service providers (CASPs) in line with the application of a risk-based approach.

In November 2019, FNB announced it was closing down crypto-related bank accounts, much to the anger of local digital currency players.

The bank notified the crypto-currency exchanges that it will close accounts for them in 2020, citing the risks the digital currencies present.

Thereafter, several banks also followed suit in unbanking the crypto-related bank accounts.

Sustainable regulatory framework

Responding to the PA’s guidance notice, FNB says: “FNB is aware of the Prudential Authority's guidance note regarding crypto assets and crypto asset service providers.

“The bank will study the directive and, where necessary, communicate through the appropriate industry forums.”

FNB says it supports efforts to establish a sustainable regulatory framework for virtual currency exchanges and continues to monitor developments in accordance with its risk appetite.

“Customers who wish to acquire crypto assets from international exchanges can do so through a SWIFT transaction in accordance with applicable Foreign Exchange Allowances.”

In an e-mail to ITWeb, Absa says it welcomes the issuing of the guidance note as part of broader efforts to implement reforms recommended by the Financial Action Task Force (FATF), which are intended to strengthen measures to combat money laundering, terrorist financing and other similar threats to the financial system.

“Absa’s processes are currently fully compliant with the requirements and measures set out in the 15 August guidance note. Absa continues to assess anti-money laundering and counter-financing of terrorism risks and threats in relation to current and new clients, including crypto entities, in line with applicable local and international regulatory requirements and guidelines.

“Absa’s current activities in the crypto-currency space stem mostly from enabling our retail customers as they buy and sell crypto-currency.”

Nedbank maintains that crypto-currencies are an unregulated and risky asset class, and “we would advise all our clients to be cautious in any dealings in crypto.

“In particular, in a regulatory environment where banks are regularly inspected and fined for administrative breaches of exchange control and anti-money laundering rules (even if there is no evidence of actual anti-money laundering taking place), it is a concern that crypto-currencies remain unregulated due to exchange control and money laundering risks that they pose.

“That said, we are committed to innovation and harnessing new trends and technology in the financial services and banking sectors”

This is, however, done on the basis of solid risk management, complying with regulatory frameworks, and protecting our clients, says Nedbank.

“We are keeping a close eye on the developments in the crypto-currency eco system and are fully committed to work with the relevant regulatory bodies in this regard. We are actively participating in the industry-wide initiative called Project Khoka, and we are supportive of the SARB confirming that it will be releasing new regulations in the next 12-18 months.”

Standard Bank had not responded to ITWeb on the issue at the time of publishing.

Sheer determination

Meanwhile, the crypto-currency exchanges, while lauding the PA’s guidance note, have described the hardships they faced after being shunned by the banks.

Leon Kowalski, CEO of Cape Crypto, says the unbanking caused an irreparable loss of trust with the company’s initial clients, as a start-up which was just getting off the ground.

“This drastically and negatively impacts a newcomers’ perception of the crypto industry as a whole. We found it quite telling that in a country that is starved for new industry; while the birth of a new financial system is exploding around the world, it was most of the traditional South African banks that took the stance to unbank all crypto asset providers, which felt like a direct attempt to stifle the rapid growth of a disruptive and potentially competing industry.

“Standard Bank, Absa and FNB wouldn't even give us a chance to show them our business and explain our AML/KYC [Know Your Customer/ Anti-Money Laundering] onboarding procedure.

“They simply said ‘no’ when they learned we were a CASP, which appeared that Standard Bank was effectively creating a monopoly for Luno, VALR and AltCoinTrader as only those CASPs were being banked at the time if I recall correctly, and no one else was afforded a chance.

“We then luckily found our current forward-thinking banking partners Sasfin and Access Bank through sheer determination; having applied to virtually every bank in South Africa after our previous unbanking. Only these two banks came through for us, which demonstrates not only their real desire to see and help small businesses grow and thrive in SA, but also to think strategically when it comes to the future of the financial system,” Kowalski says.

From a crypto industry point of view, Kowalski feels the industry would all benefit from having the specific data be made publicly available that have given rise to the guidelines from the FATF and subsequently the SARB, as well as the success rates that such guidelines have had globally.

“We’re concerned that what appears to be a rather blunt instrument approach may instead kill a thriving industry in South Africa, once again keeping the huge potential in our country from being competitive economically and technologically globally.”

Says Jonathan Ovadia, CEO of Ovex: “This is very positive news. While Ovex has always had incredibly good relationships with major South African banks due to our comprehensive compliance regimen, we welcome the SARB’s directive. It makes a lot of sense and is the only way to spot the bad actors.

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