March 4, 2022

Update: Foreign exposure limit increase for retirement funds and Transformation

Foreign exposure limit increase for retirement funds

In terms of Regulation 28 of the Pension Funds Act, the total exposure to foreign assets in a retirement fund expressed as a percentage, must not exceed the maximum allowable amount that a fund may invest in foreign assets as determined by the South African Reserve Bank, or such other amount as may be prescribed.

The previous maximum limits for retirement funds were set at 30% with an additional 10% allowance in Africa.

Following the announcement of the increased limit for foreign exposure in the Budget, the Reserve Bank prescribed the new foreign exposure limit in Exchange Control Circular No 10/22. The offshore limit for all insurance, retirement and savings funds is harmonised at 45% with no specific Africa limit.

As a result, it is not necessary for Regulation 28 to be amended and the new limits came into effect on 23 February 2022.


The FSCA has released its draft Strategy for Supporting Financial Sector Transformation on 28 February 2022.  Once promulgated, the COFI Act is expected to enable the FSCA to set requirements related to transformation on all financial institutions (which includes retirement funds) and supervise compliance thereof.

Due to the fact that the development of the legislative framework that will specifically empower the FSCA to promote transformation is still underway, the FSCA is adopting a two-phased approach to promoting transformation.  Phase 1 will focus on the role that the FSCA will play within the current legislative framework, that is the FSR Act, B-BBEE Act and the Financial Sector Code.  Phase 2 will focus on the role that the FSCA will play within the COFI Act legislative framework. Once the COFI Act is implemented, the FSCA will be empowered to set direct requirements on financial institutions relating to transformation and supervise compliance with these.

Given the levels of transformation of the financial sector currently, it is expected that all financial institutions with an annual revenue of over R10 million should reflect a B-BBEE Level 4 score or have in place a transformation plan that demonstrates how they will reach this level within five years.

Where entities are already at B-BBEE Level 4 or above, the FSCA will engage with financial institutions on an individual basis to determine their achievement of the various elements of the scorecard. Where transformation plans are deemed to be inadequate, the FSCA can engage with financial institutions to consider how plans can be improved.

Actions that can be considered where financial institutions fail to meet the targets identified in their transformation plans could include:

  • meeting with the board of the institution and engaging on the importance of transformation as a national imperative;
  • requesting a remedial plan to address the shortcomings, which can take the form of an enforceable undertaking;
  • issuing a directive for non-compliance with an enforceable undertaking; and
  • issuing an administrative penalty for non-compliance with COFI Act transformation requirements, an enforceable undertaking or directive.

Comments on the FSCA are invited by no later than 29 April 2022.