Page 87 - Profile's Unit Trusts and Collective Investments 2021 issue 2

Legislation and Guidelines

Chapter 5
Legislation and Guidelines
Legislation and Guidelines

NQF
Relevant to
The Need for Regulation 242584:1-4
242593:1-4
It is an unfortunate fact that money attracts crooks, and the lure of big money can 243147: 3, 4
change ordinary people into cheats. 243155: 1, 3
The financial markets have, over the years, seen their fair share of swindlers and
scam artists. If one adds up the losses to investors from various fraudulent schemes –
from Masterbond to Link the Limb, from Jack Milne to Eben Greyling – investors have, over the
decades, lost hundreds of millions, if not billions, as a result of unregulated or inadequately
regulated investment schemes.
The operators of investment scams will, of course, always search for ways to work outside of
regulatory structures. A strong regulatory environment cannot eliminate scams (although it can
help to reduce them), but it has the more important function of creating an investment
environment in which investors can place their faith. The regulatory framework governing
collective investment schemes (and the companies and individuals that sell them) provides
investors with the confidence to entrust their hard-earned savings to third parties.
Three pieces of legislation are of particular interest to investors and professionals involved with
collective investments:
The Collective Investment Schemes Control Act 45 of 2002 (CISCA)
The Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS)
The Financial Intelligence Centre Act 38 of 2001 (FICA)
In addition, financial advisors and other professionals should be conversant with regulations
and guidelines which exist as adjuncts or extensions to legislation. These include the Code for
Responsible Investing in South Africa (CRISA) and the Treating Customers Fairly (TCF) initiative.

Collective Investment Schemes Control Act
(CISCA)

The first legislation for the regulation and supervision of the unit trust industry was
promulgated in 1947. The Unit Trusts Control Act (UTCA) was amended several times over the
years and had become unwieldy by the end of the 20th century.
CISCA was designed to accommodate a whole range of collective investment schemes and to
bring South Africa in line with best practice elsewhere in the world.
One important purpose of the Act is the facilitation of the development of investment options such
as hedge funds and open ended investment companies (OICs), bringing South Africa in line with
international trends. Internationally, most new collective investment schemes are companies with
shareholders that pay dividends, rather than trusts with unit holders that have income distributions.
CISCA does not prescribe limits and impose constraints in the way that UTCA did. Instead,
CISCA empowers the Registrar and the industry to establish rules for different types of collective
investments under the umbrella of the Act.
As the core piece of legislation governing the industry, CISCA is referred to throughout this
book. Important elements of the Act, which are covered elsewhere, include the concept of a
participatory interest which shares proportionally in all risks and benefits of an investment, the
different types of CISs permitted under the Act, the types of securities CISs may invest in, the roles
of the main players, the key position of the CIS deed, and mandatory disclosures which must be
made available to all investors.
In addition to these basic concepts, CISCA defines the procedures for launching, winding up,
amalgamating and converting both new portfolios and new CISs. It also incorporates guidelines for
ethical practice. These, viewed in conjunction with the requirements of FAIS and FICA, are part of
a broad range of rules governing the industry which help to ensure fair and honest practice.

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Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts