South African finance minister Enoch Godongwana has put forward proposals that bar pension funds from investing in cryptocurrencies, and has also set November 12 as the public comment deadline.
Cryptocurrencies a Grey Area
According to a report by Business Insider SA, Godongwana’s timeframe for the public to comment on the draft proposals suggests he wants the changes to come into effect before the end of the year.
Prior to Godongwana’s proposals, South African pension funds considered cryptocurrencies a grey area where an investment of up to 2.5% of assets held was permissible. However, as the Business Insider explains, this ambiguous part of regulations used by pension funds to legally invest in cryptocurrencies will be removed once the minister’s proposed changes get approval.
“A [pension] fund may not invest in crypto-assets directly or indirectly,” the report explained, quoting new rules published in a government document.
Meanwhile, the finance ministry’s draft proposals suggest Godongwana is also seeking to expand the definition of cryptocurrencies to include derivatives such as non-fungible tokens (NFTs) as well as any digital asset not issued by central banks. In the report, Godongwana’s proposed definition of cryptocurrencies read:
‘[C]rypto-asset’ means a digital representation of value that is not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility; applies cryptographic techniques and uses distributed ledger technology.
South African Regulators Working to Find Right Framework
As the report notes, Godongwana’s determination to stop pension funds from investing in cryptocurrencies comes as South African regulators are attempting to find the appropriate framework to govern the blockchain industry. For instance, in June 2021, South Africa’s Intergovernmental Fintech Working Group (IFWG) released its new position paper calling for the regulation of the country’s cryptocurrency ecosystem.
Similarly, Bitcoin.com News reported in July that the South African Revenue Services had made changes to its online tax filing system in a move that targeted cryptocurrency arbitrage traders.
Just like other South African regulators that have used consumer protection considerations to justify their actions against cryptocurrencies, Godongwana’s ministry also uses similar arguments to support the draft proposals. It asserts the proposed changes will ensure protection by limiting the extent to which retirement funds may invest in a particular asset or in particular asset classes.
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