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News that South Africans with retirement funds, annuities and preservation funds can increase their offshore investment was short-lived, with the Financial Sector Conduct Authority, South African Reserve Bank and National Treasury suspending the new regulations. Sygnia has released a statement condemning the actions of the ‘lobbying’ body behind the suspension. ‘Large asset managers, acting in an anti-competitive manner, have just stopped every investor in the country from accessing additional offshore investments. Not in the interest of South Africans or clients who trust them, not in line with Treating Customers Fairly, but motivated by self-interest and greed,’ said Wierzycka. See below for the full statement. – Jarryd Neves
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Sygnia media statement:
ASISA blocks offshore investments
In a shocking development, proof has come to light that a handful of members of ASISA, a lobbying body purporting to represent all asset managers, unit trust companies and life insurers, wrote to the FSCA, National Treasury and SARB demanding suspension of the recent Circular that allowed all South African retirement fund savers to increase their overseas investments to above the current 30% limit.
Their reason, not backed up by independent legal opinion and merely referencing “our view”, was that it conflicted with Regulation 28. Sygnia had already obtained independent legal opinion from a top pension funds lawyer which confirmed that there was in fact no such conflict and that the legal effect of the Circular on Regulation 28 was clear. ASISA did not consult all of its members regarding the Circular (despite professing to represent the industry with “one voice”).
Sygnia is in the process of establishing who the authors of “our view” were, but it appears that these were primarily large asset managers including Coronation and Ninety One. Sygnia, despite being a member of ASISA, was certainly neither consulted nor informed of the letter and its contents, and the flurry of correspondence from ASISA to its members having learned of my knowledge of the letter showed panic and leads me to believe that very few other members are aware of its existence. ASISA is thus in blatant contravention of its own mandate and can no longer hold itself out as a representative body.
A remarkable and shocking justification used in the letter was that albeit “the industry supports the gradual relaxation of exchange controls” (words subsequently repeated by Ninety One in its commentary on the matter), “as controls are relaxed further, micro-prudential management by fund managers becomes more important in order to manage the foreign currency and country risk that arises in portfolios that are unconstrained by exchange control.”
Basically a handful of large asset managers who control the wealth of most South African investors have seemingly appointed themselves the custodians of all decisions relating to foreign investments, thereby disempowering the boards of trustees, actuaries, investment consultants, financial advisers, and average South Africans from making the decisions the very legislation they reference bestowed upon them.
It is not up to asset managers to determine the degree of foreign exposure appropriate for a particular investor: asset managers do not have insight into their clients’ liabilities, and it is up to an individual or board of trustees, supported by advisors who can help devise a customised strategy for each investor based on their circumstances, to do so. To claim that power for fund managers alone is the height of arrogance, as is the pressure applied to the SARB to reverse its earlier decision.
Just last week – before ASISA’s interference – the SARB confirmed the Circular, but the letter ends with a demand to the regulators to issue guidance on it by Monday, 23 November 2020, and it is possible that the SARB complied because ASISA presented itself in the letter as “the industry”.
The letter did not come from “the industry” but from a handful of large asset managers protecting their multi-million rand bonuses at the expense of the rest of South African investors. The suspension of the notice also prejudices the smaller emerging asset managers, who due to size constraints often only manage local asset portfolios. With the local investment universe being so limited, the opportunity to include inwardly-listed foreign ETFs would have expanded their opportunity set significantly and allowed them to compete better with the established large players.
Large asset managers, acting in an anti-competitive manner, have just stopped every investor in the country from accessing additional offshore investments. Not in the interest of South Africans or clients who trust them, not in line with Treating Customers Fairly, but motivated by self-interest and greed. One can but hope that the highest regulatory bodies in the country see how they have been manipulated into giving in to ASISA’s demands and take a firm stance against ASISA.
One way would be to allow the Circular to stand as is and invite comments to amend or expand it – to suspend it is not in South Africa’s best interests. I have nothing but the utmost respect for the National Treasury, SARB and FSCA, who have done a sterling job in these difficult times and have been misled by a handful of self-interested parties who do not share the same values as many other financial services providers. If the Circular remains suspended, Sygnia will make comprehensive representations to the SARB to reinstate the Circular in the interests of South Africa and its investors, and we will invite every South African to sign the submission.
Magda Wierzycka, Sygnia CEO, states, “I have no doubt that the large active managers are currently congratulating each other on successfully protecting their turf, with no concern that their self-interested actions have prejudiced the rights and investment growth of ordinary savers and breached the trust placed in them to act in the best interests of their clients”.
ASISA Letter to Olano Makhubela, the Commissioner of the Financial Sector Conduct Authority (FSCA)
We are concerned that some impressions have been created in the market that are confusing matters around exchange control reforms that were announced in the Medium Term Budget Policy Statement. In particular, there have been suggestions that these changes allow institutions to effectively 100% externalise their assets.
We believe it is urgent that the regulators provide guidance to the market to address these impressions.
Our view is that the reclassification of inward listed instruments from foreign to domestic, on the basis that they are rand traded and settled, is a positive and rational alignment of inward listed instruments. However, institutional investors are still required to comply with all prudential requirements, in particular Regulation 28 of the Pension Funds Act, and the Exchange Control Manual read together with the 2018 Guidelines for Institutional Investors. These include the foreign portfolio investment limits as set out in the guidelines.
Our view is that the look through principles (section 4 of Regulation 28 and sections iii(m) and v(a)(dd) of the guidelines) apply to all instruments that are deemed domestic but hold assets that are non-rand traded and settled. The domestic instrument is a wrapper for assets that are clearly covered by Regulation 28 and the guidelines, and the wrapper should be looked through in reporting foreign exposures and the limits that apply.
Exchange traded notes and derivatives that reference foreign assets are similar, though exchange traded notes have the additional element of credit risk to the balance sheet of the issuer. The MTBPS changes are rational in that they refocus prudential requirements at the right level, being foreign traded and settled instruments, but the fact that these instruments are held through an SA-listed domestic vehicle such as an ETF, ETN or derivative does not change the foreign nature of the ultimate assets.
We believe that the changes announced are progressive and support the development of South Africa’s financial sector and its competitiveness in managing global savings. The industry supports the gradual relaxation of exchange controls. As controls are relaxed further, microprudential management by fund managers becomes more important in order to manage the foreign currency and country risk that arises in portfolios that are unconstrained by exchange control.
It is therefore important that microprudential risk management develops in tandem with exchange control relaxation to ensure client interests remain paramount.
We are still happy to meet as agreed on Wednesday 25 November 2020 where we can discuss further detail. However we believe a Guidance should be issued as soon as possible by Monday 23 November 2020.
- SA authorities back-pedal on easing exchange controls for ETFs – independent advisor unpicks details, implications
- Sygnia CEO Magda Wierzycka: New exchange control regulations will hurt many asset managers
- Inside Investing Ep 11: Big company greed-driven lobbying killed RA breakthough – Wierzycka, Heystek
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