‘De-risking’ Crypto Firms Potentially Creates ‘Opacity in Financial Conduct’ – Regulation Bitcoin News

According to the most recent guidance note by South African banks sector regulator, Prudential Authority states that financial institutions cannot avoid or eliminate risk through the termination of all client relationships with companies such as cryptocurrency asset service provider entities. Instead, the regulator wants financial institutions to only consider “de-risking” when the “risk posed is too great to manage successfully.”

The Financial Integrity Crisis

South Africa’s main banking industry regulator, the Prudential Authority, has said some banks’ decisions to terminate relationships with crypto entities “may pose a threat to financial integrity in general.” In addition, the regulator suggested that avoiding cryptocurrency entities completely could potentially weaken banks’ risk management processes.

According to a guidance note sent to financial institutions by Fundi Tshazibana, the CEO of Prudential Authority, the removal of crypto entities such as exchanges from the banking system “can potentially create opacity in the affected persons or entities’ financial conduct.” The same also eliminates the possibility of treating risks such as money laundering, terrorist financing, and proliferation financing, the eight-page guidance note added.

Tshazibana made these remarks more than six years after news broke that South African financial institutions had issued notices terminating accounts to customers who offered cryptocurrency arbitrage. 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 meant to ensure the financial institution’s compliance with regulations.

However, in the guidance note, which must also be sent to the respective institutions’ independent auditors, the CEO instead urges banks to perform the relevant risk assessment for each crypto asset (CA) or crypto asset service provider (CASP). Tshazibana explains:

Therefore, banks should have the ability to categorise CA/CASP related clients. Banks can do this by performing a risk assessment that will aid banks in determining the proper level of caution. [money laundering, terrorist financing, proliferation financing]Risk management is required, rather than total avoidance in accordance with the 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 Great Step Forward for Crypto’

Reacting to the Prudential Authority’s latest guidance note, 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 it now understands the benefits of monitoring crypto transactions. Ehsani shared his views on the implications of the guidance note for crypto. He said:

“In my view, this is 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 trying to build products to serve people. Risks and bad actors obviously remain in crypto (as they do elsewhere) and banks won’t immediately start banking all crypto companies.”

The Valr boss also argued that the latest guidance note will likely steer South Africa “in the right direction of allowing new technologies and innovation to flourish in the country.”

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Terence Zimwara

Terence Zimwara was a Zimbabwe journalist, author, and writer who won the award. His writings have covered the economic problems of several African countries and how digital currency can offer an escape route.