Exchange controls: All eyes on the FSCA

All eyes are on the Financial Sector Conduct Authority (FSCA) after it come to light that Treasury and the South African Reserve Bank (Sarb) had moved to ease exchange controls.

Treasury, in an explanatory note put out during the Medium-Term Budget Policy Statement, said it had lifted some restrictions on how South Africans could list abroad.


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It said: “All debt, derivatives and exchange-traded instruments referencing foreign assets, that are inward-listed, traded and settled in rand on South African exchanges, will be classified as domestic. The classification of all inward-listed shares denominated in rand remains domestic.”

Read: Offshore 30% cap effectively lifted

The change means locally-listed firms holding offshore assets, will have these assets defined as domestic holdings, as long as they trade these assets locally and in rand.

The Sarb also announced it was making changes in its Exchange Control Circular No 15/2020.

This was soon followed by the FSCA saying:  “All remaining foreign classified debt and derivative instruments as well as exchange-traded funds [ETF] referencing foreign assets, that are inward listed on a South African exchange and traded and settled in rand, will be reclassified as domestic, provided they meet all eligibility criteria.”

Don’t expect too much

Though the wording of Treasury’s announcement seemingly opens up the way for an easing of exchange controls, pending certain conditions, not everyone feels that the door is about to be flung open.

Independent ETF strategist and advisor Nerina Visser, speaking on the RSGGeldsake radio show last night [listen here], downplayed the idea that exchange controls were about to disappear.

She added that although the FSCA had said it was going to reclassify the foreign assets, as things now stand until they make an announcement on the issue, current exchange control restrictions were still in effect.

The change in the definition, she notes will be controlled by the FSCA, and not by Treasury or the Sarb.

Visser also said it was unlikely that there would be any dramatic shift in how much people can invest abroad as Regulation 28 of the Pension Funds Act, which caps investment in foreign assets at 30%. She said this regulation was based on the “look-through principle,” where the underlying investment, and not the instrument that allows investors to access it, was assessed.

More on the way

Though Visser urges people to curb their enthusiasm on the prospect of a relaxation of exchange controls, the move to further ease them is on the government’s agenda.

The explanatory note says Treasury is looking at reforms that will phase out current exchange control regulations. This is part of a broader plan that will possibly see the creation of non-rand-denominated listing instruments, collateral for derivative exposures, and possible mechanisms to enable financial services providers and asset managers to manage collective investment schemes of foreign assets from SA.

The goal is to have some kind of proposal in place by early 2021.