SASLA: Facing wins and uncertainty in South Africa
20 February 2025 South Africa
Image: SFT
The South African Securities Lending Association (SASLA) provided updates on key regulation at its conference in Cape Town — showcasing a promising year for the region, though a year not without uncertainty.
The discussion at the South African Securities Lending and Collateral Management conference began with the treatment of securities lending and repo transactions within South Africa’s Resolution Framework.
South Africa has faced issues with its Resolution Framework for designated institutions. Unlike other jurisdictions, securities lending and repos were subject to various bail-in and cancellation provisions in the South African framework.
This is unlike derivatives, where currently, the Financial Sector Conduct Authority (FSRA) says that derivative instruments are not subject to the bail-in and cancellation powers.
In December 2024, a General Law Amendment Bill was published which would remove the current provisions put upon securities lending and repo.
The amendment will dictate that master agreements under Section 35b, such as the Global Master Securities Lending Agreement (GMSLA), will not be subject to the bail-in or cancellation powers. Although not yet live, participants are eager for a quick implementation.
Following this, the panel provided an update on South Africa’s netting opinion, which is not yet viewed as 100 per cent clean.
The region has faced changes to its laws, including the outright transfer of securities, with further positive changes in South Africa expected to help the region join the green list in terms of netting opinions.
Other countries in Africa which have started to be clean netting jurisdictions include Ghana, soon to be Nigeria, Mauritius. Netting laws will also come into effect in Uganda and Rwanda.
Moving onto the taxation of collective investment schemes (CISs), the subject is something that has created a lot of noise in the industry.
Currently, collective investment schemes in securities, such as the long-only funds and a portfolio of a hedge fund, effectively function as a conduit, provided they are fully distributed.
If they distribute all income of a revenue nature, within 12 months of its accrual or the receipt, in the case of interest, then the portfolio is not taxed, but the investor would be taxed on those income distributions.
The issue with CISs comes when there is an income, for example a realisation gain on the disposal of an asset — the question is whether it is defined as capital or revenue.
If it is capital, it can be reinvested with no tax impact. If it is revenue and not distributed within 12 months, then the CIS would be taxed on that. There remains much uncertainty relating to CISs on how to apply capital and revenue principles.
A discussion document released last year addresses the rules around CISs and puts forth three proposals: to change the system from a partial conduit to a fully tax transparent system; to provide a safe harbour; or to remove hedge funds from the CIS tax regime.
Industry participants hope 2025 will be the year for more tax certainty, in regards to which changes will be put forward and when it will be implemented.
Looking to the rest of the year, T+1 is in the pipeline for a number of regions such as the UK, Europe, and Switzerland.
In terms of South Africa, a panellist questioned whether there were other priorities that the region should focus on before considering a shorter settlement cycle, having noted that there are a number of inefficiencies in the financial markets in South Africa.
The discussion at the South African Securities Lending and Collateral Management conference began with the treatment of securities lending and repo transactions within South Africa’s Resolution Framework.
South Africa has faced issues with its Resolution Framework for designated institutions. Unlike other jurisdictions, securities lending and repos were subject to various bail-in and cancellation provisions in the South African framework.
This is unlike derivatives, where currently, the Financial Sector Conduct Authority (FSRA) says that derivative instruments are not subject to the bail-in and cancellation powers.
In December 2024, a General Law Amendment Bill was published which would remove the current provisions put upon securities lending and repo.
The amendment will dictate that master agreements under Section 35b, such as the Global Master Securities Lending Agreement (GMSLA), will not be subject to the bail-in or cancellation powers. Although not yet live, participants are eager for a quick implementation.
Following this, the panel provided an update on South Africa’s netting opinion, which is not yet viewed as 100 per cent clean.
The region has faced changes to its laws, including the outright transfer of securities, with further positive changes in South Africa expected to help the region join the green list in terms of netting opinions.
Other countries in Africa which have started to be clean netting jurisdictions include Ghana, soon to be Nigeria, Mauritius. Netting laws will also come into effect in Uganda and Rwanda.
Moving onto the taxation of collective investment schemes (CISs), the subject is something that has created a lot of noise in the industry.
Currently, collective investment schemes in securities, such as the long-only funds and a portfolio of a hedge fund, effectively function as a conduit, provided they are fully distributed.
If they distribute all income of a revenue nature, within 12 months of its accrual or the receipt, in the case of interest, then the portfolio is not taxed, but the investor would be taxed on those income distributions.
The issue with CISs comes when there is an income, for example a realisation gain on the disposal of an asset — the question is whether it is defined as capital or revenue.
If it is capital, it can be reinvested with no tax impact. If it is revenue and not distributed within 12 months, then the CIS would be taxed on that. There remains much uncertainty relating to CISs on how to apply capital and revenue principles.
A discussion document released last year addresses the rules around CISs and puts forth three proposals: to change the system from a partial conduit to a fully tax transparent system; to provide a safe harbour; or to remove hedge funds from the CIS tax regime.
Industry participants hope 2025 will be the year for more tax certainty, in regards to which changes will be put forward and when it will be implemented.
Looking to the rest of the year, T+1 is in the pipeline for a number of regions such as the UK, Europe, and Switzerland.
In terms of South Africa, a panellist questioned whether there were other priorities that the region should focus on before considering a shorter settlement cycle, having noted that there are a number of inefficiencies in the financial markets in South Africa.
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