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Exchange controls: All eyes on the FSCA

Financial regulator will have the final say on what assets are defined as foreign or domestic.
Look-through principle still applies - ETF strategist and advisor Nerina Visser. Image: Moneyweb

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.

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 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.

Listen: Nerina Visser discusses the latest changes to offshore investment restrictions with Simon Brown




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This way SA will SARS might still get a slice of the pie. A rapidly shrinking pie.

ETF’s in SA are still a little unloved. In the US close to 50% of all transactions on their bourses involve ETF’s.

South Africans are a little slow on the uptake and could be that most ETF investors has moved offshore anyway.

Lets see how it pans out.

Don’t see this happening in Reg 28 portfolios. Large asset managers have too much to lose.

these realists sure can spoil a party…….

The reality is that individuals are not off shoring their investments/capital at all, its all through an intermediate and the funds have to return to South Africa. Our exchange control is archaic and draconian in its application

Eish – and who controls the FSCA – The Federal Reserve Bank of New York.

The FSCA in my mind is a bit of a lame duck – they are battling to get their ”ducks in a row with regards to the way they respond, rule, advise with regards to ”Bitcoin” trading in sunny SA!

I wouldn’t hold my breath here to be honest.

Whilst I detest Reg 28 in itself, allowing investors to effectively circumvent it by using the inwardly listed ETFs is clearly against the spirit of Reg 28.

I don’t see the FSCA going for this to be honest. They may as well repeal Reg 28, and I would be cheering if they do.

For now we can but hope this does become a reality. If it does, we can likely expect an explosion of new ETFs being registered on the JSE.

Exchange controls should not be relaxed.

Keep the resources in the country.

It will affect pensions and the JSE.

Govt. should encourage investing in the local economy.

You need to get a world view – this country is toast thanks to ANC under Zuma and then Ramarama

What? There is a local economy?

1/10. Having to have exchange controls is a measure of confidence in the country and economy doing the right and principaled thing according to accepted principals (non-racism, property rights, minimal government interference and so on). Keeping them just shows that even the ANC regime has no confidence. It is like a jail for your money.

A move made just in time for the PIC to enlarge their Offshore Asset Swops! Funny how rules change to suit those that make them! This does not show much ANC confidence in the very economy they control….it will encourage more local companies to seek offshore listings but a lot might see themselves hitting the wall. JSE companies are in for an interesting ride!

End of comments.





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