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Q3 2021 - (released November 2021)

SA's quarterly Private Equity & Venture Capital magazine

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Private Equity and Venture Capital Regulatory Review

by Shelley Lotz

As part of its mandate the Southern African Venture Capital and Private Equity Association (SAVCA), engages with various regulators and policy makers advocating for changes to the regulatory, policy and legal framework with the objective of making South Africa a more attractive investment destination, as well as increasing the capital flows to private companies in Southern Africa.  

This is a snapshot of some of SAVCA’s focus areas currently impacting the industry.

Twin Peaks Regulatory reform
As part of the wider Twin Peaks regulatory reform, National Treasury published the second draft of the Conduct of Financial Institutions Bill (COFI bill) which seeks to regulate the market conduct of financial institutions in South Africa. The legislative reform aims to harmonise the legislation and treatment of all financial services firms doing similar types of activities, irrespective of whether they are a bank, asset manager, insurer or private equity firm.  

The COFI bill, once enacted, is expected to have a significant impact on the private equity industry.  Although the COFI bill is not yet finalised, it clearly indicates the regulator’s intention in relation to all alternative assets.  The explanatory policy paper accompanying the COFI bill clarifies that pooled funds currently regulated under the Collective Investments Schemes Control Act (CISCA), private equity funds and real estate trusts will be licenced under the COFI bill. 

SAVCA provided detailed comments on the first and second draft of the COFI Bill, which were followed up by several engagements with National Treasury and the FSCA. SAVCA understands that there will be no further opportunity for public comment on the COFI Bill, and that National Treasury intends to submit the final Bill directly to Parliament for approval by the end of 2021.   

Proposed amendments to Regulation 28 
National Treasury issued proposed amendments to Regulation 28 for public comment together with an accompanying media statement on 26 February 2021. Regulation 28 is issued under the Pension Fund Act. The main purpose of Regulation 28 is to protect pension fund members from poorly diversified investment portfolios or portfolios which are considered too aggressive or risky. The key aspects covered in SAVCA’s submission were as follows:


  • SAVCA is supportive of the proposed delinking of hedge funds and private equity and increasing the maximum exposure limit of private equity to 15% as set out previously in SAVCA’s Regulation 28 position paper.

  • The accompanying media statement includes the detailed explanation of why the amendments were considered, and the rationale for the changes. It was, however, unclear how, the proposed changes to the legislation are supportive of these objectives in some instances, and if they will achieve the desired outcomes as set out in the media statement.

  • The definition of infrastructure, as set out in the amendments, was limited to projects that form part of the national infrastructure development plan.  This plan only includes public infrastructure. SAVCA proposed that the definition be expanded to include both public and private infrastructure, and discussed in detail the anomalies and uncertainty created as to what the amendments were trying to achieve.

  • The other item causing confusion is that once infrastructure is defined, the overall exposure to infrastructure through the various asset classes is limited to 45% for domestic exposure and an additional 10% in respect of the rest of Africa. The limits appeared arbitrary and, as the exposure to infrastructure (however it is defined) is currently not monitored, the market cannot assess what impact the proposed changes would have.


2021 Draft Taxation Law Amendment Bill (“TLAB”)
The 2021 Draft TLAB was issued for public comment on 28 July 2021. SAVCA’s main concern in respect of the 2021 Draft TLAB was the proposal to ‘restrict the off-set of the balance of assessed losses in determining taxable income’ and the impact on SMME’s and infrastructure projects. The stated purpose for the limitation on assessed loss utilisation is to broaden the tax base to cater for the anticipated lowering of the overall corporate rate in a tax revenue neutral manner.  

Unfortunately, even with the attempt by National Treasury to introduce the assessed loss limitation in the least onerous manner possible, by limiting the assessed loss utilisation in a year to 80%, but still allowing the balance to be carried forward to the following year, would result in start-ups, SMMEs and infrastructure projects being disproportionately impacted. SAVCA included detailed comments objecting to this proposal, based on how it could impact South Africa’s economic recovery plans, even post recovery, highlighting the detrimental impact it would have on start-ups and SMMEs and the increase in the cost of capital for infrastructure projects.  

SA Start-up Act
The World Bank funded an initial position paper to start the consultation process for a South African Start-up Act (SUA) collaboration. The SUA is looking to provide a framework and legislative support for how start-ups, and scale-ups in particular, operate. It will focus on incentives and the removal of barriers for start-ups, including relaxation of Intellectual Property and exchange control restrictions. The SUA received a recent boost when industry collaborators were invited to engage directly with President Ramaphosa on this and other initiatives aimed at reducing the red tape for entrepreneurs and SMEs to help foster job creation opportunities. 

SAVCA and its members are committed to increasing investment and job creation, and supporting South Africa’s economic recovery.  SAVCA invites policymakers/regulators to attend SAVCA events, and would welcome collaboration to achieve SA’s growth ambitions.  

Lotz is Head of Regulatory Affairs at SAVCA.

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