In a significant development for South Africa’s cryptocurrency industry, the Reserve Bank’s Prudential Authority (PA) has issued a “guidance note” to local banks saying they should provide banking facilities to crypto exchanges.

In recent years, several major banks have moved to “unbank” such exchanges, including Luno and VALR.com. FNB in 2019 controversially terminated banking services to “virtual currency exchanges and intermediaries trading in virtual currency”.

VALR CEO Farzam Ehsani on Thursday lauded the guidance note, entitled “Supervisory guidelines for matters related to the prevention of unlawful activities”, calling it a “great step forward for crypto, for South Africa and for the banks themselves”.

“It’s particularly helpful for companies in the crypto space that are responsibly striving to protect products that serve people,” Ehsani said.

The note to banks and other financial institutions was penned by PA CEO Fundi Tshazibana. In essence, Ehsani said, the authority has said that it is “time to bank crypto companies”.

“The PA is aware that certain banks in South Africa have previously opted to terminate [banking services provided to] crypto asset service providers (CASPs)…,” Tshazibana said in the note. Ehsani said that to his knowledge, this is the first time the Reserve Bank, where the PA is housed, has officially acknowledged this happened.

“FNB unbanked us and other major crypto companies headquartered in South Africa back in 2019/2020, and we all moved across to other banking partners in the country,” he said.

According to the Tshazibana’s note, risk assessment by the banks “does not necessarily imply that institutions should seek to avoid risk entirely (also known as de-risking), for example, through wholesale termination of client relationships that may include CASPs”.

‘Act with discretion’

“The PA still leaves space for banks to act with discretion in this regard, by stating that ‘if the risk posed by a particular business or customer is too great to manage successfully, the decision to de-risk should only be made after careful due diligence and consideration’,” said Ehsani.

“The remaining portion of the note gives guidance linked to the treatment of CASPs and crypto assets ‘based on the application of a thorough risk-based approach’. The PA effectively guides banks to ‘evidence an understanding of what elements are driving or reducing [money laundering and other] risk within CASPs and crypto assets’ versus having a blanket ban on banking crypto companies,” he added.

Read: FNB explains why it’s closing crypto-exchange bank accounts

“Risks and bad actors obviously still remain in the crypto industry (as they do elsewhere), and banks won’t immediately start banking all crypto companies. But this note takes South Africa in the right direction in allowing new technologies and innovation to flourish in the country,” Ehsani said.

“Start-ups are hard. Crypto start-ups are even harder, particularly when a basic thing such as having a bank account is not a given. Well done to the Reserve Bank: this is an important and much-needed statement for the country.”

The full guidance note is available here (PDF).  – © 2022 NewsCentral Media