SA pursuing regulation 28 amendments to outlaw pension funds from crypto investments


TL; DR Breakdown

  • South Africa (SA) is in the process of amending regulation 28 of its finance laws. The amendments, when ratified, will outlaw Pension Funds( PFs) from investing in cryptos.
  • PFs had used a loophole in the regulations to invest upwards of 2.5% of their assets in crypto. The proposed laws have defined crypto assets broadly to include non-fungible tokens (NFTs). 

South Africa (SA) is pursuing amendments to a regulation that’ll impact how Pension Funds (PFs) interact with cryptos. If passed, the laws will outlaw PFs investing in crypto.

Those amendments target regulation 28 of the country’s Pension Fund Act. These changes will guide PFs in how they invest pensioners’ funds. They seek to reduce risks to members’ funds by controlling where PFs may invest.

South Africa’s finance minister Enoch Godongwana has set a November 12 deadline for public submissions on the proposed amendments. This timeline means that the country could adopt the laws this year.

PFs have previously exploited a lacuna in the laws to pursue crypto investments. They’d do this by using rules relating to “other assets.” The PFs interpreted the rules to mean they could invest a maximum of 2.5 percent of their assets in digital currencies.

Comprehensive crypto definition

Under the proposed laws, that will be a thing of the past. Godongwana’s draft laws explicitly ban PFs from investing in crypto assets. A part of the law reads, “A [pension] fund may not invest in crypto-assets directly or indirectly.”

This draft law is available in SA’s Government Gazette and clarifies the “other assets” clause.

Moreover, the laws give a comprehensive definition of cryptocurrencies. Besides privately issued crypto assets, the description also includes NFTs. Further, the law captures future advancements within the digital assets space too.

This draft explains crypto assets as value presented in a digital form. Again, such an asset isn’t a product of the SA Reserve Bank (SARB). But people and legal entities can exchange, move and store it in a digital format.

Additionally, that asset uses cryptography and DLT technology. And apart from payments, it’s a means of investment that allows the enjoyment of different kinds of utility.

The draft excludes state or SARB issued crypto-assets, though. This exclusion is perhaps in anticipation of SA’s pursuing a CBDC.

SA regulators are pushing for crypto controls

Godongwana’s draft follows the country’s regulators’ push for a sound framework to govern DLT industries. For example, the country’s Intergovernmental Fintech Working Group (IFWG) has called for control of the country’s crypto sector.

In a recent paper, IFWG proposes state management of Crypto Assets Service Providers (CASP). The body recommends approaching the process in phases.

IFGW has presented its proposals in three categories. First, it requires CASPs to adhere to anti-money laundering(AML) and combating the financing of terrorism (CFT) laws. They’re to report transactions exceeding $ 1817.

The second proposal regards controlling cross-border crypto transactions. IGWF’s paper recommends that SARB supervises and regulates these payments. 

Finally, IFWG is rooting for the recognition of crypto-assets as financial products and, to that end, calling for the licensing of CASPs. This licensing would allow their oversight and enable consumer protection.

The group insists that it isn’t endorsing any crypto assets and holds that its position originates from several factors. These include the need to advance responsible innovation and avoid scam activity prevalent in the sector.

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Edith Muthoni

Edith is an investment writer, trader, and personal finance coach specializing in investments advice around the fintech niche. Her fields of expertise include stocks, cryptocurrencies, blockchain, and cryptocurrency investments.

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