According to the latest guidance note issued by the South African banking sector regulator, Prudential Authority, risk assessment does not mean financial institutions should avoid or eliminate risks via the wholesale termination of client relationships with entities such as crypto asset service providers. Instead, the regulator wants financial institutions to only consider “de-risking” when the “risk posed is too great to manage successfully.”
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.
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:
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 [money laundering, terrorist financing, proliferation financing] risk management measures 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.”
“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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