National Treasury and the South African Reserve Bank are proposing a new regulatory route aimed at bringing a bigger share of the global investment-management business to South Africa by enabling qualifying institutions to manage approved foreign portfolios from within the country.
The draft Synthetic Financial Centre (SFC) framework would allow qualifying institutions licensed or authorised in South Africa to conduct specified foreign-currency activities through ring-fenced arrangements. Investors’ existing offshore limits and other regulatory obligations would remain in place, and participation would depend on meeting the proposed eligibility and approval requirements.
The South African Reserve Bank published the draft framework for comment on 21 October. Interested parties have until close of business on 30 November 2026 to submit comments, after which the SARB said it would consider the submissions and make appropriate revisions where necessary.
The SARB said it expected the reform to attract investment-management activity to South Africa, deepen financial markets, enhance the financial sector’s competitiveness, support skills depth, and strengthen the country’s role as a gateway for investment into Africa.
In the 2026 Budget Review, National Treasury said it would expand the holding-company concept available to corporations to include institutional investors, enabling asset managers to manage portfolios of foreign assets and trade foreign-currency-denominated financial instruments from South Africa.
A financial centre created by regulation
The draft circular defines the SFC as a centre established “by regulatory framework and not by geography”. Qualifying institutions would be permitted to manage foreign portfolio assets and conduct approved foreign-currency-denominated financial activities from South Africa through ring-fenced mandates, portfolios, accounts, or other arrangements.
The SFC would operate within South Africa’s existing legal and supervisory system. According to the draft, it would apply solely for capital-flow purposes and would not constitute a separate legal jurisdiction, exchange, market infrastructure, investment vehicle, or fund domicile.
Approval to participate would also not constitute permission to establish, register, domicile, offer, or market an investment product in South Africa. Those activities would remain subject to the applicable licensing and regulatory requirements.
The draft describes the SFC as the next stage in the development of the HoldCo regime and the Domestic Treasury Management Company framework, which enabled corporate groups to conduct more sophisticated foreign-asset and treasury activities from South Africa.
The first phase of the SFC would enable qualifying institutions to manage foreign-asset portfolios on a domestic platform.
A second phase may consider broader reforms, including foreign-currency-denominated equity and debt listings, the domiciliation of investment vehicles, market infrastructure, foreign-currency collateral arrangements, and related tax, legal, and regulatory matters.
The scope and implementation of the second phase would be subject to further regulatory assessment and consultation.
What the proposal could mean for discretionary FSPs
The draft identifies Category II and IIA discretionary financial services providers as potential SFC participants. Other proposed categories are institutions licensed by the Prudential Authority (PA) and authorised users of South African exchanges, excluding external authorised users, that also hold the required Category II or IIA authorisation.
For discretionary FSPs, the proposal creates a potential route to managing qualifying foreign portfolios from South Africa, but it would not automatically extend SFC participation to every licensed provider.
Category II or IIA authorisation would be only one part of the eligibility test. An applicant would also have to register with the Financial Surveillance Department (FinSurv), obtain approval, demonstrate that the relevant mandate or portfolio could be ring-fenced effectively, maintain sufficient records to identify and attribute SFC assets, liabilities, and exposures, and comply with the proposed reporting obligations.
A Category I licence alone would not satisfy the specified discretionary-FSP route. However, an entity that qualified under another category listed in the draft would have to be assessed against the requirements applying to that route.
Firms considering the opportunity would therefore need to assess not only whether they fall within an eligible category, but also whether their business models, clients, systems, controls, and operational capacity could support the proposed requirements.
The proposed categories also include private-equity fund managers that are members of the South African Venture Capital Association and meet the draft’s discretionary FSP authorisation and exchange-control requirements; authorised dealers; and certain South African credit providers that are also authorised discretionary FSPs.
Foreign FSPs could apply to the FinSurv concurrently with any applicable licensing application to the Financial Sector Conduct Authority or PA. They could not begin SFC activity until all required licences, approvals, and authorisations had been obtained.
The draft contains overlapping provisions for managing institutions and qualifying SFC participants. The final framework may therefore need to clarify how the eligibility requirements apply to categories such as collective investment scheme managers.
Approval would be limited to the specified SFC mandate, portfolio, account, or arrangement. The draft says this regulatory approval would not constitute approval of the underlying contractual investment mandate between the participant and its client.
Approved participants could manage qualifying foreign assets or foreign-currency exposure, administer or service approved foreign investment mandates, acquire, hold, manage, or trade qualifying SFC instruments, undertake qualifying foreign-currency financing, and centralise approved management, administrative, or servicing functions.
The draft would also allow participants to transfer, relocate, or centralise qualifying foreign operations. These could include operations conducted through a foreign branch or office, as well as foreign portfolio administration, custody, and foreign-currency investment activities. The underlying assets would have to remain eligible foreign assets, and the applicable prudential, supervisory, licensing, and reporting requirements would continue to apply.
Investors’ offshore limits would remain
The proposed framework would not give South African investors additional offshore capacity.
According to the draft, South African institutional investors could invest through an approved SFC participant within their existing prudential foreign limits, while authorised dealers would remain subject to their macroprudential foreign limits. Individuals could invest through the SFC using their existing foreign-capital or single discretionary allowances.
Non-residents would be permitted to invest through approved SFC participants without restriction under the proposed SFC exchange-control provisions. This would not exempt participants or investors from applicable licensing, prudential, supervisory, regulatory, or reporting requirements.
Entities without a recognised foreign-investment limit, allowance, or other regulatory foreign-exposure capacity, including South African trusts, corporates, and partnerships, would not be able to participate directly. The draft says they could participate through an approved originating institution, unless the FinSurv approved another arrangement.
Foreign exposure acquired through an SFC mandate would remain attributable to the investor on whose behalf it was acquired. It would continue to count against that investor’s applicable prudential or macroprudential foreign limit, foreign-capital allowance, single discretionary allowance, or other applicable dispensation.
Assets managed or transferred within the SFC would retain their original domestic or foreign classification for exchange-control, prudential, and reporting purposes.
Foreign exposure acquired on behalf of an originating institution under an approved SFC mandate would not count against the managing participant’s own prudential foreign limit. However, the exposure would have to be clearly segregated and attributed to the investor. Exposure acquired by the participant for its own account would count against whatever prudential or macroprudential foreign limit applied to that participant.
Under the current Currency and Exchanges Manual for Authorised Dealers, institutional investors may acquire foreign exposure within the limits applicable to their category. In an arrangement between a managing institution and an originating institution, retail assets managed on behalf of the originating institution form part of the originating institution’s prudential foreign limit. The manual also requires the domestic and foreign components of exposure to be determined on a look-through basis.
Before acquiring offshore exposure for an originating institution, an SFC participant would also have to verify that the FinSurv had formally accepted, rather than merely acknowledged, the originating institution’s latest quarterly asset-allocation report.
Ring-fencing and regulatory controls
All assets, liabilities, transactions, positions, income, expenses, cash flows, and exposures within an approved SFC mandate would have to be separately identifiable and operationally segregated from the participant’s other business.
An SFC participant would have to maintain a ring-fenced resident foreign-currency account with an authorised dealer. The account could be used only for amounts directly associated with approved SFC activities, including attributable fees and expenses.
Investments would generally have to be funded from an approved foreign-currency source. Related foreign-currency flows would have to originate from or be credited to an approved source, unless the FinSurv approved otherwise.
A qualifying SFC instrument would have to comply with the framework’s core principles, be attributable to an approved SFC mandate, be funded from an approved foreign-currency source, and be settled in foreign currency.
The draft expressly says participation would not permit unrestricted externalisation, exposure above an applicable allowance or prudential limit, or circumvention of the Authorised Dealer Manual.
Foreign-exchange transactions, capital transfers, settlement-related cash flows, and regulatory reporting associated with SFC activities would have to be conducted through an authorised dealer or through another arrangement approved by the FinSurv.
Participants would have to submit quarterly returns identifying the originating institution, holdings and exposures by instrument category, and the funding sources and financing arrangements attributable to approved mandates.
The FinSurv could amend, suspend, or withdraw approval if its conditions were breached, the arrangement ceased to comply with the framework, materially inaccurate or misleading information was supplied, or the structure was used to circumvent applicable rules or limits. The department could direct that an affected arrangement, transaction, or position be amended, regularised, reclassified, or unwound.
Qualifying foreign exposure and the look-through test
A financial instrument would qualify only where its economic exposure, determined by looking through to the underlying assets, risks, and returns, was principally attributable to assets, issuers, or economic activity outside South Africa. Institutional investors would have to identify and report the domestic and foreign components separately.
A predominantly foreign portfolio would not be excluded merely because it contained incidental South African assets or exposure. However, those assets would retain their domestic classification for exchange-control, prudential, regulatory, and reporting purposes. Their inclusion in an SFC portfolio would not cause them, or their associated income, distributions, proceeds, or resulting exposures, to be treated as foreign.
These provisions would allow a qualifying portfolio to be managed from South Africa without reclassifying its underlying foreign exposure as domestic or its incidental South African exposure as foreign.
Competing for international business
Operation Phumelela, a private-sector initiative that aims to position South Africa’s financial sector as a competitive regional financial-services hub, said it developed the SFC concept during two years of collaboration among financial-sector leaders and technical specialists, working with National Treasury and the SARB.
The initiative believes the framework could expand South Africa’s exports of financial services and generate demand for investment professionals, legal and accounting expertise, technology, compliance, and other specialist services. It also argues that locating more international financial activity in South Africa could retain management fees, banking and custody income, skilled employment, and tax revenue that would otherwise accrue in offshore financial centres.
“This is about winning international business, attracting investment mandates and building a financial sector that contributes more to economic growth. We developed the SFC because South Africa should be competing for this business, not watching it move elsewhere,” Valdene Reddy, JSE group chief executive and chair of Operation Phumelela, said in the initiative’s statement.
An Operation Phumelela briefing document, citing SARB data, says South Africans’ offshore portfolio assets increased from R2.695 trillion at the end of 2020 to R4.922tn at the end of March 2026, an increase of about 83%.
Operation Phumelela separately estimated that R10tn in South African savings is managed offshore. In a statement published after the 2026 Budget, the initiative said the proposed SFC and related capital-markets reforms could attract some of that financial activity to South Africa. It did not disclose the estimate’s valuation date, underlying data, or methodology.
The figures do not necessarily measure the same thing: the R4.922tn figure relates to offshore portfolio assets, whereas the R10tn estimate concerns savings said to be managed offshore. Neither figure estimates how much business will enter the SFC, how much will be managed by participating firms, or how much capital will be invested in South African assets.
Operation Phumelela anticipates that the framework could be finalised before the end of 2026, subject to completion of the consultation process. The SARB has not committed to that timetable.
Comments must be submitted on the prescribed template and sent to FinSurvDocuments@resbank.co.za.
