South African Crypto Leaders Demand for Revision of Regulation 28 To Permit Digital Asset Investments
Authorized cryptocurrency providers in South Africa have called for an overhaul of Regulation 28 to align with global financial market leaders and permit pension funds to invest in digital assets.
Cryptocurrencies and regulation debates have become common in recent years. In the past few years, regulations have restricted investors’ access to digital assets and require careful consideration of various factors like investor protection, financial stability, and innovation.
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Recently, a debate regarding South African pension funds has surfaced. Pension fund investments in cryptocurrency are gaining traction, but is it legally allowed to use pension money for crypto? This blog talks about proposed amendments in Regulation 28 to allow pension funds to invest in crypto assets.
Why Regulation 28 Needs Reform?
Regulation 28 is an act that specifies how South African pension funds can be invested. Though an update was made in January 2023 to promote investments in offshore assets, hedge funds, and private equity, it still didn’t cover a major debate involving cryptocurrencies. The National Treasury cites volatility concerns and inadequate regulatory measures of cryptocurrencies as the major reasons for this limitation.
Reform advocate and VALR CEO Farzam Ehsani recently brought attention to the opportunity costs of this limitation and exclusion. In a Jan. 2 X post, Ehsani wrote, “Let 2025 be the year that Regulation 28 changes to give pension funds the option of including crypto assets. South Africans deserve nothing less.”
Global Regulation Trends and SA Position
Not so long ago, the United States had a lot of restrictions on cryptocurrencies. However, they had to ultimately wave them off and propose regulatory reforms considering the rising demand for cryptocurrencies. Similarly, the US has welcomed cryptocurrency investments for pension funds.
US retirement funds can now actively participate in Bitcoin ETFs, and work with any kind of exchange that is regulated and authorized to operate.
According to reports, pension fund holders are also inclined to invest in cryptocurrencies considering the greater returns and stability. SA’s National Treasury remains skeptical of cryptocurrency even though the Financial Sector Conduct Authority (FSCA) has issued 250 crypto asset service provider licenses. The reason behind these licenses is to provide regulation and security to the cryptocurrency world and address volatility and fraud concerns.
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Marius Reitz, general manager of Luno in Africa says:
“Luno’s position as a regulated entity and its custody and liquidity products for institutions give it a strong foundation to support this next phase of crypto’s evolution. The company has built its reputation on operating within a compliant framework and ensuring the security of customers’ crypto assets.”
Challenges and Opportunities with Regulation Reform
This regulation reform is much needed though it would not be without obstacles. The infrastructure required to support such investments may boost fund expense ratios. Additionally, volatility is another concerning thing as cryptocurrencies are expected to receive limited initial allocations in pension portfolios. However, the potential advantages exceed the drawbacks. Shiven Moodley, macro strategist at 80Eight, suggests that investing in infrastructure is justified by the potential returns.
Frank Leonette, CEO of the newly launched crypto exchange Afridax, says Regulation 28 needs to evolve to address the rapidly changing financial landscape brought about by innovations like crypto assets and tokenization of real-world assets on blockchains.
For SA, it’s high time to update Regulation 28 to promote crypto investments and propel the country to the upcoming wave of financial innovation. South Africans also deserve the opportunity to diversify their pension funds and contribute to the expansion of the sector. By doing this, South Africa will get an equal opportunity to participate in the crypto space and collaborate with crypto market leaders.
