JOHANNESBURG, Oct 24 – South African fund managers could invest 100% of qualifying ring-fenced portfolios in foreign assets under a proposed regulatory framework designed to strengthen the country’s position as an international financial centre.
The South African Reserve Bank (SARB), National Treasury and Johannesburg Stock Exchange (JSE) presented the draft Synthetic Financial Centre (SFC) framework to investors after its publication on Wednesday. The proposal would allow licensed asset managers, banks, insurers and private equity firms to manage global portfolios in any currency from a South African base.
Under the proposed rules, the existing 45% offshore investment limit would continue to apply when an institution allocates capital to an SFC vehicle. Once funds enter a registered, ring-fenced mandate, however, managers would be permitted to invest the entire portfolio in foreign assets.
The originating institution would still count its investment in the vehicle towards its own prudential foreign investment limit, meaning the proposal would change how qualifying portfolios are managed rather than abolish the broader restriction.
Stuart Theobald, executive chairperson of think tank Krutham and convenor of Operation Phumelela, a private-sector initiative led by the JSE to improve South Africa’s financial-sector competitiveness, described the removal of the cap at mandate level as “the most fundamental change” in the framework.
South Africa seeks to retain global investment activity
The proposal addresses a longstanding challenge for South Africa’s financial industry: the difficulty of managing fully global portfolios from Johannesburg under existing exchange-control rules.
Close to 5 trillion rand, equivalent to approximately $301 billion, in South African portfolio assets are held offshore. Much of that capital is routed through overseas financial centres, partly because domestic restrictions have limited the ability of local institutions to manage portfolios invested entirely in foreign markets.
The SFC framework is intended to make it easier for international investment structures to operate from South Africa, potentially bringing portfolio management activity and related financial services back into the domestic market.
“The SFC really positions South Africa with a framework that makes it competitive,” JSE chief executive Valdene Reddy said.
The proposal forms part of a broader overhaul of South Africa’s decades-old exchange controls. The JSE estimates that the reforms could attract 10 trillion rand in investment over time.
Prudential offshore limit remains in place
Despite the proposed flexibility for ring-fenced mandates, regulators have indicated that the broader prudential limit will remain a central feature of the country’s capital-flow framework.
Olano Makhubela, head of the SARB’s Financial Surveillance Department, said the 45% prudential limit would remain a “long-term feature” of South Africa’s system.
The distinction means that qualifying financial institutions could offer clients portfolios invested entirely offshore without receiving a general exemption from the rules governing their own foreign asset allocations.
The proposed framework therefore seeks to expand the range of investment products and management services available from South Africa while retaining existing safeguards at the institutional level.
Further reforms under consideration
The draft SFC framework could be followed by additional changes to strengthen the country’s financial-market infrastructure.
Vukile Davidson, chief director of financial markets and stability at National Treasury, said a second phase could consider aligning tax treatment and permitting foreign-currency listings on South African exchanges.
These measures could further support the development of Johannesburg as a location for managing international assets and conducting cross-border financial transactions.
The draft framework is open for public comment until November 30. Its final provisions will determine how qualifying mandates are registered, how participating institutions are regulated and how the proposed arrangements operate alongside existing exchange controls.
For South Africa, the initiative represents an effort to retain more financial activity domestically while making the country’s investment-management industry more competitive internationally, without removing the broader prudential limits governing offshore exposure.
