Exchange control proposals to be reviewed
JOHANNESBURG - The government has put on hold proposed changes to exchange control laws in a bid to create an enabling environment that would make it easier for foreigners to invest in the country’s economy.
The National Treasury, the SA Reserve Bank (SARB) and the Financial Sector Conduct Authority (FSCA) said yesterday that they intended to review the country’s exchange control laws.
The review was limited to providing clarification on the scope of changes to the announcement related to the reclassification of inward listed instruments.
“The circular issued on October 29, 2020, dealing with the reclassification of inward listed instruments is therefore suspended with immediate effect, to reduce the scope for ambiguity related to compliance with the prudential framework for regulated funds,” read the statement. “All approvals granted on the basis of Circular 15/2020 are also suspended.”
The circular says all remaining foreign classified debt and derivative instruments as well as exchange traded funds referencing foreign assets, that were inward listed on a South African exchange, traded and settled in rand, were to be reclassified as domestic.
Exchange controls are governmentlimitations on the purchase and/or sale of currencies by residents and non-residents, as well as on the transfers of any currency across national borders.
In the past, the instruments were
classified as foreign, and as such, institutions could only invest in them as far as their prudential limits allowed.
Finance Minister Tito Mboweni announced last month that the current exchange control regulations will be replaced with new less stringent regulations.
In his Medium Term Budget Policy Statement (MTBPS) speech, Mboweni said that steps were being taken to make cross-border business easier, including relaxing rules around inward listings, loop structures and foreign corporate borrowings.
Anchor Capital’s Nolan Wapenaar said they “noted” the postponement of the exchange control regulation changes.
“This is not a surprise and was expected by a number of market participants, including ourselves,” he said.
Wapenaar said that he did not think that this decision had a major impact on the performance of the rand yesterday.
The rand closed yesterday 0.06 percent firmer to R15.34 against the dollar taking its cues from offshore events in terms of strengthening.
Wapenaar said the transition process finally being started by the Trump administration and the positive developments regarding the likelihood of a Covid-19 vaccine saw the rand recover a few cents against the dollar.
“We note that the moves today were relatively small for the rand which is in line with our view that it will be a creep stronger from here.”
FXTM’s Lukman Otunuga said appetite towards the rand received a slight boost after the SARB leading indicator rose by 1.7 percent for August.
“Although this was the weakest reading since May, it was still above 0 percent – raising hopes for an economic rebound in the third quarter,” he said.