‘Deregistration’ of Crypto Firms Potentially Creates ‘Opacity in Financial Behavior’ – Regulation Bitcoin News
According to the latest guidance issued by the South African banking sector regulator, Regulatory risk assessment does not mean that financial institutions should avoid or eliminate risks via wholesale termination of customer relationships with entities such as crypto asset service providers. Instead, the regulator wants financial institutions to consider “de-risking” only when “the risk is too great to manage successfully.”
A threat to financial integrity
South Africa’s main banking industry regulator, the Prudential Authority, has said that some banks’ decisions to end their relationships with crypto entities “may pose a threat to financial integrity in general.” In addition, the regulator suggested that avoiding cryptocurrency entities could potentially weaken banks’ risk management processes.
According to a guidance note sent to financial institutions by Fundi Tshazibana, CEO of the Prudential Authority, the removal of crypto entities such as exchanges from the banking system “potentially creates opacity in the financial behavior of the individuals or entities concerned.” The same also eliminates the ability to address risks such as money laundering, terrorist financing and proliferation financing, the eight-page guidance added.
The remarks by Tshazibana come more than six months after reports emerged that certain South African financial institutions had issued account termination notices to customers offering automated cryptocurrency arbitrage services. As previously reported by Bitcoin.com News in late 2021, one of the banks, Standard Bank, insisted at the time that the termination of services to crypto entities was intended to ensure the financial institution’s compliance with the regulations.
But in the guidance note, which will also be sent to the respective institutions’ independent auditors, the CEO instead encourages banks to carry out the relevant risk assessment for each crypto asset (CA) or crypto asset service provider (CASP). Tshazibana explains:
It is therefore prudent for banks to be able to risk categorize CA/CASP-related customers by carrying out a risk assessment that will help the banks to determine the correct level of [money laundering, terrorist financing, proliferation financing] risk management measures that are necessary, as opposed to total avoidance, in line with the application of a risk-based approach.
The CEO argued that the decision to de-risk or terminate service should only be made after “the risk posed by a particular business or customer is too great to manage successfully.”
“A big step forward for crypto”
Reacting to the Prudential Authority’s latest guidance, Farzam Ehsani, CEO of a South African crypto exchange platform called Valr, said in a tweet that the arguments put forward by the regulator indicate that it now understands the benefits of monitoring crypto transactions. Ehsani also gave his thoughts on what the guidance note means for the crypto industry. He so:
“In my view, this is a big step forward for crypto, for South Africa and for the banks themselves. It is especially useful for companies in the crypto space that are responsibly trying to build products to serve people. Risks and bad actors remain obvious in crypto (as they do elsewhere), and banks won’t immediately start bankrolling all crypto companies.”
The Valr boss also claimed that the latest guidance is likely to steer South Africa “in the right direction to allow new technology and innovation to flourish in the country”.
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