Money and Markets

New draft rules ban SA pension funds from touching bitcoin and its crypto peers

Business Insider SA
No bitcoin
A protest in El Salvador against the introduction of bitcoin as legal tender. (SOPA Images/Getty Images)
  • South African pension funds will be explicitly, and absolutely, banned from investing in bitcoin and similar assets under new draft rules.
  • Finance minister Enoch Godongwana has put forward a set of mostly technical changes to Regulation 28, which governs exactly how pension funds may invest member money.
  • Included is a ban on putting pension money into anything using a distributed ledger – unless a central bank creates it.
  • Crypto investments by pension funds had been considered a grey area, with small investments perhaps possible.
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South African pension funds will be banned – in no uncertain terms – from investing in bitcoin or its sibling cryptocurrencies, under new draft rules.

And that could happen soon. On Friday, finance minister Enoch Godongwana set 12 November as the public-comment deadline for his proposal, making it possible for the changes to be brought into force before the end of the year.

It had previously been thought possible for pension funds to put up to 2.5% of their assets into cryptocurrencies, under rules allowing for a broad category of "other assets" to form part of their strategies.

But any shade of grey will disappear under the new plan.

"A [pension] fund may not invest in crypto-assets directly or indirectly," read the new draft rules published in the Government Gazette – and that specifically includes via the "other assets" allowance.

The definition of a crypto asset is set broad enough to capture bitcoin, its various offshoots, the non-fungible tokens (NFTs) that have stormed the art world, and future developments along the same lines – but not any digital currency the Reserve Bank or other state issuers may choose to create.

"''[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," reads the definition.

South African regulators have sought to explore the possibilities of distributed ledgers for various uses, but simultaneously often expressed deep and abiding suspicions about the speculative nature of cryptocurrencies, and the near-complete lack of protection for investors compared to traditional and regulated asset classes.

The proposed changes are to Regulation 28, which draws on the power of the Pension Funds Act to spell out how funds may invest. In doing so it "reduces excessive and concentration risk to member savings and ensures protection by limiting the extent to which retirement funds may invest in a particular asset or in particular asset classes" the National Treasury has previously said.

(Compiled by Phillip de Wet)

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