Page 88 - Profile's Unit Trusts and Collective Investments 2021 issue 2

CHAPTER 5

Ethical Guidelines
CISCA places an obligation on CIS managers to administer schemes honestly, fairly, and with “skill,
care and diligence”. A scheme must be administered in the interests of investors and the CIS industry.
The Act gives the Registrar the right to declare a particular practice or manner of
administration an undesirable practice. The offering of incentives to representatives is a good
example. This is something which became almost an industry norm, but which is now regarded as
an undesirable practice.
Specific requirements of the Act with regard to good practice include the following:
Transactions must take place within acceptable time limits (ie, it is not acceptable for a unit
trust to take weeks, rather than days, to pay out an investor following repurchase of units).
Managers must ensure that the assets of investors are kept separate from the assets of the
manager, and that all assets and participatory interests are properly identified.
Managers must avoid conflicts of interest between themselves and investors, and must
disclose own interests to investors.
Managers must also, in terms of the Act:
manage risks to which the CIS scheme is exposed
keep proper records
employ adequately trained and properly supervised staff
have well-defined compliance procedures
promote investor education
cultivate a cooperative relationship with the Registrar
The CIS manager must ensure that full disclosure is made to each investor and potential
investor, including:
information about the investment objectives of the CIS
exact details about how the NAV and dealing prices are calculated
information about risk factors affecting the CIS
details of distribution of income accruals
In addition to the above, the CIS manager must generally ensure that enough information is
given to the investor to enable the investor to make an informed decision, and must ensure
that the information is communicated in an easy to understand manner.
As can be seen, CISCA places a strong obligation on the CIS manager to run a collective
investment scheme in a highly professional and honest manner. Some of these obligations
encompass representatives and intermediaries, because they are often the means by which the CIS
manager communicates with investors. The activities of brokers and agents are more specifically
regulated, however, via FAIS.
The Twin Peaks Approach to Regulation
The Financial Sector Regulation Act (FSRA) is referred to as the “twin peaks” model because it
strives to separate the regulation of the soundness of the financial markets from the protection of
consumers of financial services. These functions place very different demands on authorities; it is
believed that regulation of the financial markets is more effective when these roles are separated.
A bill outlining a new system of regulation for South Africa’s financial markets was first put
forward for comment in 2013. After going through various drafts, the bill was approved by
parliament. It was signed into law by the president on 21 August 2017 and implementation has
started. As a first step, the FSB became the FSCA in April 2018.
The second authority will be established under COFI. This act has not yet become law, but the
second draft of the bill was published at the end of September 2020.
The overall legislative framework will result in a prudential regulator, housed within the SA
Reserve Bank, and a financial sector conduct authority (FSCA). The prudential authority will be
responsible for overseeing the soundness of financial institutions, particularly banks and insurers.
The market conduct office (FSCA) will seek both to protect the consumers of financial services and

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