The South African Central Bank (SARB) has published guidelines for local banks to conduct business with cryptocurrencies and cryptocurrency companies. In addition, the governor of SARB stated that they do not consider cryptocurrencies as a means of payment but as an investment.
Last year, South Africa’s financial watchdog, the Financial Sector Conduct Authority (FSCA), announced plans to release a regulatory framework in 2022. This in partnership with the Prudential Authority and the Financial Surveillance Board (FSB) to govern how trading in Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Litecoin (LTC) should proceed. At the time, FSCA commissioner Unathi Kamlana said the goal was to allow the FSCA discretionary power to intervene if consumers are offered a product carrying significant risk.
Risk assessment, not avoidance
The Prudential Authority’s guidelines draw from guidance issued by the Financial Action Task Force (FATF) regarding the need for a bank to evaluate its vulnerabilities to money-laundering, terrorism financing, and proliferation financing. Suppose the PA opines that a bank’s processes to handle risk are insufficient. In that case, it may intervene and request the bank to strengthen its policies, procedures, processes, or internal controls.
Some South African banks have already terminated banking relationships with what the PA calls Crypto Asset Service Providers (CASPs) due to the inability to quantify risks posed or the lack of a regulatory framework for the service provider. Banks perceive CASPs as having a higher risk profile.
However, the PA cautions banks against avoiding risk rather than conducting proper risk assessments. This approach opens the door for greater criminal anonymity and obstructs treating AML/TF shortcomings appropriately. Proper risk assessment includes understanding what is driving the risk within a crypto asset or service provider, including the pedigree of a CASP’s clientele, their transactional activity, and cross-border fund flows. Internal controls must be flexible enough to adapt to new technologies, the PA said.
CBDC many years away
In July 2022, the deputy governor of the SARB, Kuben Naidoo, said that the central bank views cryptocurrencies as assets rather than a means of payment. He said the bank was already considering licensing some crypto exchanges, even though regulations could take between 12 and 18 months.
Additionally, Naidoo noted that the central bank could offer a digital version of the fiat currency, the South African Rand (ZAR). The bank has conducted two pilot projects, including a sandbox experiment with the new central bank digital currency (CBDC). However, its introduction could take years, Naidoo opined.
