Standard Bank has served account termination notices on several clients who offer automated cryptocurrency arbitrage services, MyBroadband has learned.
This has left several businesses scrambling to figure out how to respond and has raised questions about the criteria Standard Bank used to decide whose accounts to close.
The move from Standard Bank comes two years after First National Bank terminated the bank accounts of major South African cryptocurrency exchanges.
Arbitrage is the practice of buying something in one territory—in this case, digital assets from international exchanges—and selling them elsewhere where the price is higher.
Cryptocurrencies like Bitcoin have always tended to sell at higher prices on South African exchanges like Luno, Valr, and AltCoinTrader.
Several businesses have popped up in South Africa to exploit this “arbitrage gap” and offer clients quick returns on investment.
It should be noted that this is not an “infinite money hack” where the wealthy can perpetually generate constant 1% to 5% returns.
Besides the fact that the arbitrage gap would eventually vanish if exploited enough, regulations also limit how much money residents of South Africa may send offshore without special permission from the Reserve Bank.
These limits are the single discretionary allowance (SDA) and the foreign discretionary allowance (FDA).
The SDA allows South Africans to invest R1 million offshore, provided it is declared to the Financial Surveillance Department (FinSurv).
The FDA allows investments of up to R10 million but comes with additional requirements, including obtaining a tax clearance certificate.
Even though arbitrage operators rely on heavily regulated SDA and FDA transactions that they must declare to FinSurv, Standard Bank has issued a number of these players with account closure notices.
All of the affected arbitrage operators MyBroadband spoke to did so on condition of anonymity.
One explained that there would be a major meeting among digital asset service providers this afternoon to discuss solutions.
As such, they have not yet informed their clients, and they can’t go public yet.
Among those who spoke openly about the issue were Shiftly and Revix. [Update: Valr provided feedback following publication.]
Shiftly co-founder Carel de Villiers said that although they do not use Standard Bank, they tried to open an account with the bank.
Standard Bank declined Shiftly’s application on the grounds that they don’t bank companies with an arbitrage business model.
He said this was curious because the bank maintains relationships with Shiftly’s competitors, some of whom copied their business model verbatim.
Another arbitrage operator whose bank account is being terminated, and who asked to remain anonymous, said they had a similar experience.
They said Standard Bank asked them to jump through several compliance loopholes and then served them with a termination notice anyway.
Revix founder Sean Sanders said that they had a different outcome in their dealings with Standard Bank, though it should be noted that they are not an arbitrage player.
While the application process with Standard Bank was gruelling, the bank ultimately approved their high-volume account, and Revix will be moving to them entirely at the end of this month.
“We went through four or five, really gruelling twelve to twenty people Zoom meetings to finalise these accounts,” Sanders said.
“They wanted to know the way that our payment flow occurred. They wanted to know every single detail.”
Sanders said that the South African cryptocurrency industry needs some sensible regulation to be put in place.
“It is ridiculous in South Africa at the moment,” he said.
“The banking risk for crypto players is astronomically high without regulations.”
Sanders said that at the very least, South Africa needs something similar to the UK, which has an authorised list of cryptocurrency players.
Valr, a cryptocurrency exchange that offers arbitrage services, says that its banking relationships remain intact and unchanged.
It switched to using Standard Bank as its exclusive banking partner in February 2020 after FNB closed its account.
“Valr is committed to operating a business that is fully compliant with regulatory frameworks both locally and abroad,” Valr co-founder and CEO Farzam Ehsani toldf MyBroadband.
“Since our inception we have spent considerable resources — financial and otherwise — to ensure we remain well ahead of any regulatory requirements.”
Ehsani said that they have a robust Risk Management and Compliance Programme in place and have spent a significant amount of time with their banking partners to ensure they bring services to the public in the most responsible manner possible.
Speculation in the industry is that the South African Reserve Bank pressured Standard Bank to crack down on cryptocurrency arbitrage players.
However, the bank declined to confirm this directly.
“Standard Bank is committed to treating its clients fairly and constantly strives to strike the appropriate balance between maintaining client relationships and ensuring regulatory compliance,” a spokesperson for Standard Bank said.
“In line with its legislative requirement to develop and implement a risk-based approach in managing client relationships, the Bank has established risk management principles against which all prospective and existing clients are continually evaluated and assessed.”
According to Standard Bank, the principles are fairly and consistently applied and allow each case to be considered on its own merits.
“The Bank will continue to be guided by its legislative obligations while ensuring that any measures taken are proportionate to the risks identified.”
The bank then pointed MyBroadband to the South African Reserve Bank and Intergovernmental Fintech Working Group’s position paper on crypto assets.
MyBroadband asked Koinexpert for comment but it did not respond by the time of publication.
Update — 27 October: Koinexpert said that the South African banking sector has clearly taken a stance, and it is anti-crypto. “We believe that the adoption of crypto assets will only increase over time. We suspect that the first bank to cater to this new demand will no doubt become a market leader. Until the FSCA provides its final declaration on crypto assets, Koinexpert will be keeping a keen eye on regulatory developments,” said Koinexpert technical officer Ardi Coetzee.