Page 84 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 5

Ethical Guidelines
The Act gives the Financial Sector Conduct Authority (FSCA) 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 their 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 FSCA
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 (FSR) Act introduced what is referred to as the “twin peaks”
regulatory 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 FSR Bill outlining a new system of regulation for South Africa’s financial markets was signed
into law by the president in August 2017 and became effective in March 2018.
The Act established a prudential regulator, the Prudential Authority, housed within the SA
Reserve Bank (SARB), and a market conduct authority, the Financial Sector Conduct Authority
(FSCA), that has taken over the staff of and replaced the Financial Services Board (FSB).
The Prudential Authority is responsible for overseeing the soundness of financial institutions,
particularly banks and insurers.
The FSCA is responsible for protecting consumers of financial services and improving the
conduct of service providers in the financial markets. This authority is also responsible for effective
financial education of consumers.

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