The banking authority said avoiding risk by cutting off crypto-involved clients may pose a “threat” to financial integrity.
The Prudential Authority of the Reserve Bank of South Africa sent out guidelines to its subsidiaries in an effort to prevent illicit activities, encouraging banks not to cut all ties with cryptocurrency.
It suggested that such an act could cause greater risk in the long run.
The official notice was signed by Prudential Authority CEO Fundi Tshazibana. In the past, certain South African banks had cut ties with crypto asset service providers (CASPs) — as they are called in the document — due to unclear regulations or a high-risk factor.
However, the notice highlights that risk assessment doesn’t mean dropping crypto entirely:
“Risk assessment does not necessarily imply that institutions should seek to avoid risk entirely (also referred to as de-risking), for example, through wholesale termination of client relationships which may include CASPs.”
It goes on to say such a move could even be a “threat” to general financial integrity, as it may limit the possibilities of treating issues such as money laundering.
In late July, the Reserve Bank released an assessment of risks within the local banking sector. According to the report, cryptocurrencies and virtual assets were included in the top 10 threats identified by the top local banks.
Related: European Central Bank addresses guidance on licensing of digital assets
Prior to the report, the South African government released a plan that entailed the classification of crypto as a financial asset for regulatory purposes. The laws pertaining to the classification are expected within the next 12 months.
Crypto exchanges in South Africa reacted positively to this announcement. Many believe this move will drive adoption in the country. The country has seen major signs of interest and innovation in the crypto community, including “in real life,” or IRL, crypto use cases.
South Africa is home to crypto projects such as Bitcoin Ekasi, a township that introduced Bitcoin as a means of bolstering the financial independence of local underserved communities and Unravel Surf Travel, a South African-based travel pro-crypto travel company.