Changes to financial and foreign exchange regulatory arrangements

Introduction

In the 2010 Budget and the Medium Term Budget Policy Statement, the Minister of Finance said that details of proposed changes to financial and foreign exchange regulatory arrangements would be published before the end of this year. These proposed changes include:

• Regulation 28. The second draft of Regulation 28 was released on 10 December 2010. Linked to this draft, today the prudential foreign asset limits for institutional investors are also being revised.
• Discussion document. To allow for more time for internal consultations within government, the release of the comprehensive discussion document entitled Strengthening the financial sector to better serve South Africa is postponed and will now be released for public comment in February next year.

Gill Marcus and Pravin Gordhan comment

Speaking at a WESGRO investor lunch in Cape Town yesterday, SA Reserve Bank Governor Gill Marcus touched on a number of key themes for the domestic and global economies, a key focus of which was the current debate about the strength of the rand and the wall of money that continues to flood emerging markets.

The SARB is of the opinion that capital flows into emerging markets will continue into next year, and we think this signals that the Bank's inflation forecast will likely be reduced at upcoming meetings.

The governor went on to say that the solution to ZAR strength is "not clear cut" and that the desired outcome of Brazil's tax on inflows was “short-lived”. All this speaks to recent comments by the SARB that, although it remains concerned about the strength of the rand, there is very little it can do (by itself).

Cosatu's demands to ANC

Trade union federations wants gold mining companies nationalised, tightening of foreign exchange rules, says Reserve Bank should resist rand appreciation and states the SARB's primary role should be job creation

Cosatu called on Tuesday for a reversal of measures taken to relax exchange controls and for taxes on short-term capital flows.

The positions laid out in an economic policy paper put pressure on the ruling African National Congress to reconsider its foreign exchange and economic policies when it holds a major strategy setting session next week.

"Due to relaxation of capital controls, (company) profits were repatriated in the form of dividend payments ... The outflow of funds increased South Africa's dependence on short-term capital flows to finance expenditure," it said.

Reserve Bank: Financial Surveillance Department

As part of ongoing reforms, the Minister of Finance previously announced the shift from exchange controls to a system of prudential regulation by replacing unnecessary administrative controls with improved surveillance and prudential limits on foreign exposure risks. In line with the gradual change in the functions and responsibilities of the Exchange Control Department, the Minister of Finance also announced that the name of the department will be changed to the Financial Surveillance Department. This name change will be effective as from 02 August 2010.

At this stage, the change does not affect the application of the Exchange Control Regulations, Orders and Rules, 1961, issued in terms of the Currency and Exchanges Act, 1933 (Act No. 9 of 1933).