FirstRand, one of South Africa’s biggest bank with $93 billion in assets, is to close the bank account of major crypto exchanges in the country, including Luno, ICE3X, VALR and AltCoinTrader.
The bank announced its decision in a letter sent to exchanges seen by local media. They say:
“FirstRand Bank has been considering its risk appetite in respect of virtual currencies and virtual currency exchanges for some time.
Within this context the bank has taken the decision to discontinue the provision of banking services to virtual currency exchanges and/or entities dealing/trading in virtual currency.
Future regulatory clarity may cause us to revise our decision.”
This decision sent shockwaves throughout South Africa’s crypto ecosystem, with Richard de Sousa, CEO of AltCoinTrader, stating:
“We believe that the limitations set on the industry will only drive innovation. Customers can be assured that it is business as usual and challenges, whilst sometimes unexpected, are not uncommon in such a nascent industry.”
Sousa suggested there was international pressure behind this decision, stating “banking services [are] being denied to individuals and industry players around the globe.”
FirstRand itself has not given any specific reason, stating only that they will revisit the decision if regulatory clarity is reached.
All of the exchanges mentioned above say they have banking relations with other providers. So this decision does not seem to have changed much on the ground, but it has been quite some time since a bank acted so indiscriminately towards an entire industry.
The British Financial Conducts Authority (FCA) implicitly accused banks of anti-competitive practices in 2017 precisely because of this “wholesale” approach towards the blockchain industry.
What South Africa’s equivalent regulator plans to do is not clear, but a premium has developed in the country with bitcoin there around $500 more expensive than on global exchanges.
On AltCoinTrader bitcoin’s price currently is 127,950 South African Rand (ZAR) worth around $8,600. While on Coinbase and other exchanges, bitcoin’s price stands at $8,100.
That suggests bitcoin’s adoption and popularity is considerably increasing in South Africa, but also suggests capital controls as otherwise there would be arbitrage. Sousa told Trustnodes:
“The premium seems to be due to the high demand for Bitcoin in conjunction with the foreign exchange control imposed on South African citizens.
South African residents are only legally allowed to send R1 million each calendar year out of the country (equivalent of $6,740).
Outside of this R1 million allowance, residents are legally allowed to apply for a special clearance by the South African Revenue Service to send up to a further R10 million out of the country.
The process by which residents need to apply for this special clearance (known as a Foreign Investment Allowance) is extremely laborious and fraught with bureaucracy.
This seems to drive South Africans to buy Bitcoin and other cryptocurrencies and send these offshore, instead of going through this laborious process, thereby driving the demand for Bitcoin up, and of course, its ZAR price.
With such stringent foreign exchange controls, it also makes it more difficult for arbitrage traders to get their funds offshore, thereby keeping the difference at the high premium of an average of about 5%.”
Meaning it is a bit difficult for South Africans to do businesses internationally. Hence bitcoin’s increasing popularity, which can be sent anywhere in minutes without requiring anyone’s permission.