Exchange control relaxation on hold

National Treasury, the South African Reserve Bank (Sarb) and the Financial Sector Conduct Authority (FSCA) are in effect withdrawing a circular on exchange controls, which broadened how much South Africans could invest offshore.

In a joint statement released this morning, they said they were reviewing the circular to provide clarification on the reclassification of inward-listed instruments.

“[They] intend to review Exchange Control Circular 15/2020 issued by the Sarb, following the announcement by the minister of finance in the Medium Term Budget Policy Statement (MTBPS) Speech on October 28, 2020,” it stated.

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Offshore 30% cap effectively lifted
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They says the review is “limited to providing clarification on the scope of changes to the announcement related to the reclassification of inward-listed instruments.”

This move follows much debate about the significance of their efforts to relax exchange controls, by allowing locally-listed firms to treat their offshore assets as domestic assets, as long as the firms’ assets can be traded on a local exchange and traded in rands.

This relaxation, however, created some confusion around whether Regulation 28 of the Pension Funds Act, which caps investment in foreign assets at 30%, would still be in effect.

Asset managers were divided on the importance of the relaxation, with some saying it was a radical move on the part of the country’s finance authorities, while others downplayed its significance.

Read: ‘Look-through’ not an issue on exchange controls – Wierzycka

The authorities have now acknowledged this confusion, hence their review of the relaxation.

“This follows enquiries by various stakeholders having different interpretations on the extent that the circular affects the foreign investment limits applicable to institutional investors, inter alia, retirement funds, collective investment schemes and insurers.”

In the statement, it says the MTBPS announcement aims to create an enabling environment that makes it easier for
foreign investors to invest in South Africa and support the country’s growth as an investment and financial hub for Africa.

It added: “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.”

It said the circular issued on October 29, 2020, dealing with the reclassification of inward-listed instruments was “suspended with immediate effect, to reduce the scope for ambiguity related to compliance with the prudential framework for regulated funds.”

“An amended circular will be issued following a period of public consultations. All approvals granted on the basis of Circular 15/2020 are also suspended.”

The dispensation before Circular 15/2020 remains in existence.