The South Africa Reserve Bank (SARB)’s Prudential Authority has issued a guidance note to banks for dealing with transactions by crypto asset service providers (CASPs).
In the note signed by the Prudential Authority CEO Fundi Tshazibana, the central bank said that it is aware that certain banks in the country have previously opted to terminate the bank/customer relationship with CASPs.
According to the note, the banks opted for this termination because of the risks of money laundering (ML), terrorism financing (TF) and proliferation financing (PF) that come with the CASPs’ lack of formal regulatory requirements.
Although it acknowledges the banks’ reasons for termination, the central goes on to state that risk assessment by banks should not imply that they should seek to avoid risk entirely by cutting off CASPs from their services (also known as de-risking).
SARB states that de-risking may pose a threat to the country’s financial integrity. It also warns that de-risking could potentially create opacity in the affected persons’ or entities’ financial conduct, thereby eliminating opportunities to treat money laundering, terrorism financing and proliferation-financing risks.
“It is thus prudent for banks to be able to risk categorise CA/CASP-related clients through conducting a risk assessment which will assist banks in determining the appropriate level of ML/TF/PF risk management measures necessary, as opposed to total avoidance, in line with the application of a risk-based approach,” the central bank emphasised.
SARB concludes the note by stating that the decision to de-risk should be made only if the risk posed by a particular business or customer is too great to manage successfully. Even in this case, the decision must be made with due diligence and consideration.
Some past instances of major South African banks cutting relationships with CASPs include National Bank (FNB) terminating the accounts of South Africa’s major cryptocurrency exchanges LUNO and VALR in 2020 and Standard Bank shutting down accounts of automated cryptocurrency arbitrage services last year.