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Exchange control relaxation suspended after confusion a...

Business Maverick

Business Maverick

Exchange control relaxation suspended after confusion about application 

An employee counts mixed denomination rands at the Forex department inside a bank branch in Johannesburg. The National Treasury has, since 1955, slowly unwound the tangled web of legislation that governs South Africa’s exchange control regulations. (Photo: Nadine Hutton/Bloomberg via Getty Images)

In an abrupt about-turn, National Treasury, the South African Reserve Bank and the Financial Sector Conduct Authority intend to review an exchange control circular that was issued by the SARB, on the eve of the Medium Term Budget Policy Statement speech on 28 October 2020. 

While presenting his medium-term budget to the country, Finance Minister Tito Mboweni announced steps to make cross-border business easier, including relaxing rules around inward listings, loop structures and foreign corporate borrowings. 

A bit more detail was provided in his comments in a circular issued by National Treasury the next day, which said it was exploring the listing of foreign-denominated assets on local exchanges.

This is part of an ongoing process that has seen the Treasury slowly unwind the tangled web of legislation governing South African exchange controls. 

This year has seen an acceleration of this process as the government works to attract inward investment and position the country as an African financial hub. 

However, the investment industry has interpreted the circular in various ways, in particular with regard to the reclassification of inward listed instruments. 

It was understood that instruments including all debt, derivatives and exchange-traded instruments referencing foreign assets – that are inward listed, traded and settled in rands on South African exchanges – will be classified as domestic. 

While this may be the case, the investment industry interpreted this to include investments governed by regulation 28 of the Pension Fund Act, which imposes limitations on money managers’ allocation of retirement savings to certain asset classes, and to what extent they can invest pension assets offshore.

In the statement issued on Tuesday, Treasury made it clear that this was not the case. 

The National Treasury would like to emphasise that the announced reforms to the capital flow management framework do not alter the prudential framework currently applicable to all regulated funds, including retirement funds, collective investment schemes and insurance.”

As a result, the Treasury has suspended the circular, issued on 29 October 2020, dealing with the reclassification of inward listed instruments. 

This is to “reduce the scope for ambiguity related to compliance with the prudential framework for regulated funds”.

All approvals granted on the basis of circular 15/2020 have been suspended. 

“This is not surprising given the confusion that it caused,” says Andrew Dittberner, CIO, Old Mutual Wealth, Private Client Securities. 

“Some industry participants appeared to get ahead of themselves in jumping to the conclusion that the statement effectively removed capital controls, and advertising as such. 

“The reality though was that it quickly became evident that there was no coordination between Treasury, SARB, FSCA and the pension fund regulator, and clearly, the industry regulating bodies were not aware of it and hence Treasury has had to withdraw the statement for now. 

“We await further clarity on this, but for the time being the status quo remains.”

A period of public consultation has begun, ahead of the drafting of a new circular. 

In particular, the Treasury is asking for input on the selling of a derivative or ETF where the underlying foreign asset is issued by a company not listed on a South African exchange. 

The period of public consultation closes on 15 December.

Approached for comment, spokesperson for the Association for Savings and Investment in SA, Lucienne Fild, noted that ASISA is in the process of putting a team together to provide comment by the 15 December deadline. DM/BM


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  • This is an interesting turn of events indeed. I am a private investor (former, since reformed, “Institutionalised” Investor/Saver/Pension Fund Payer etc.). I am not an Asset Manager or Industry insider, which is perhaps why I am not so confused. I have read (including the actual Circular and ASIS’s letter) and listened to various opinions and positions on the matter. My simplistic understanding is as follows: Treasury and the SARB have relaxed certain exchange control provisions, creating a framework thereby, I guess, hoping to ease access to foreign investable instruments, for the likes of you and I, tradeable locally in Rand – either privately or institutionally. There are, of course, certain provisions and controls. I am led to believe that this is in part to mitigate the need for Financial emigration. It will hopefully also spark some much-needed life into the local markets, i.e. JSE. In the wake of this easing of controls, the FSCA sent a circular to Industry, advising/reminding them that, notwithstanding these relaxations, the Industry players, are still obligated to exercise due care and discharge their duties diligently, faithfully and appropriately; to protect their clients’ money and meaningfully grow it! Where does the confusion lie?

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