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Treasury’s proposed ban on retirement-fund investing into crypto assets

I think this ban effectively puts a cap on or stifles opportunities to develop financial inclusion and products from young entrepreneurial ventures, as much as it protects against speculative investment: David Geral of Bowmans.

SIMON BROWN: I’m chatting now with David Geral, Bowmans’ head of banking and financial services. David, I appreciate the early morning time. A note came into my inbox, I think it was late last week, around National Treasury’s proposed ban on retirement-fund investing into crypto assets – and crypto assets is a fairly broad category. My thought was it was a little short-sighted. You seem to agree with it in the note. Certainly you say you have some concerns, some questions. Your key concerns around this proposed band for retirement funds?

DAVID GERAL: Hello, Simon. Thank you for the time. I think, similarly to you, the concern is that it seems a bit heavy-handed and a little less nuanced than we expected the regulations to be when they started coming out – in light of the position that Treasury announced earlier on in the year.

SIMON BROWN: We were in a situation as well – crypto assets are a new sort of asset class there. It’s more than just our regulators – I suspect it’s much broader around the world – where regulators almost seem to be a little bit behind the curve, perhaps, on it. Or am I being perhaps overly harsh on them?

DAVID GERAL: I think the issue really comes down to how crypto assets are defined, and part of the problem is there’s little knowledge. But there has been quite a lot of development in a number of regulated jurisdictions and countries with whom South African regulators have had interaction. There’s a difference between payment tokens, for example, and securities tokens. We are not just talking specifically about what maybe many of the public would recognise as cryptocurrencies, and highly [speculative] investments. I think it’s an area of development and it’s an area in which financial inclusion can be developed, where young entrepreneurial ventures can develop products for the world. I think this ban effectively puts a cap on or stifles opportunities there, as much as it protects the public against speculative investment.

SIMON BROWN: I take your point. There are two sides to it. The one is someone with a pension fund [thinking] ‘I’m losing out’. But the other side is, of course, the flow of cash into an industry. I think of infrastructure; the ability for pension funds to invest into infrastructure helps that sector.

DAVID GERAL: Yes and interestingly it’s the same draft regulatory amendment that deals with the expansion of the infrastructure capabilities for pension funds. It also contains, in the same document, this crypto-asset ban. So there is an irony there, for sure.

SIMON BROWN: This is proposed; it isn’t yet law. Is there still sort of negotiation or is that door closed and it’s proposed, but it will come in as law in time?

DAVID GERAL: I don’t have a very clear sense. The comments on this draft were invited [to be submitted] by November 16, so comment is officially closed. But the inter-governmental fintech working group – which is sort of the hub of a number of regulators which then inform how specific regulators should move forward – has been engaging quite actively with industry for a couple of years. But I think this came a bit out of the blue, this particular ban, so there’s probably a good chance it will be proceeded with.

The question then is whether anybody decides that it ought to be challenged, because I think there are some lawfulness issues around banning an investment class altogether.

SIMON BROWN: Okay. I get you on that. I hadn’t actually thought [of that]. In a sense it’s restricting the trustees of the pension fund’s ability to invest where they think the money is best invested.

We’ll leave it there. David Geral, head of banking and financial services regulatory at Bowmans, I appreciate the early morning time.



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