Page 86 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 5

Hot Tips?
The definition of advice under FAIS is deliberately broad in order to be as inclusive as
possible. Does this mean that the exchanging of share tips on the golf course between
friends is regulated by FAIS?
The answer, as a rule, is no. The FAIS definitions involve advice to a client given as part of the
regular business of the FSP. Loose talk between mates is therefore not at issue. But a financial
adviser playing golf with his clients needs to be careful: investment tips given at the 19th hole would
be subject to FAIS rules.

The changes in the second draft of the COFI bill include:
How COFI will be applied in relation to existing legislation

The approach to conduct standards

A redesigned approach to licensing

More detail around transformation (BEE and EE) and enforcement

The removal of medical schemes for the meantime

Streamlining of the interaction between the Financial Markets Act and COFI
Application of COFI to non-retail business (eg, where clients are corporates or where clients
are professional investors)
A key objective of the COFI bill is to give legislative muscle to the TCF principles (see page 99),
which are not currently enforceable. COFI will, amongst other things, ensure that the TCF
principles are legally binding.
The key themes of the COFI can be summarised as follows:
Activity-based
Under COFI, the licensing regime will focus on the defined activities that a prospective licensee
wishes to perform, not on defined sectors. This is a change from existing regulations, which tend to
apply rules according to a classification of institutions rather than activities.
Conduct Standards
The first draft of COFI contained enabling provisions for making conduct standards in different
chapters. These were removed in the second draft and the standard-making provisions in the FSR
Act have instead been strengthened. The FSCA has thus empowered, through the
conduct-standard making provisions in the FSR Act, to set conduct standards.
The first conduct standards have already been published and the Conduct Standard for Banks,
released by the FSCA on 3 July 2020, is seen as a precursor of the conduct-related principles that
will be contained in COFI.
There are two conduct standards for collective investments – one relating to the NAV
calculation and pricing of CIS portfolios and one relating to the delegation of administrative
functions.
The FSCA has also published a draft conduct standard on the requirements for collective
investment scheme managers.
The standard sets out:
requirements relating to governance and control, including risk management, compliance

and internal auditing for managers;
requirements relating to the identification, avoidance and management of conflicts of
interest including the adoption of a conflicts of interest management policy;
requirements relating to how portfolios are designed, developed and distributed including
approval, monitoring, review and reporting of portfolios;
requirements for a manager’s prospectus and what it must contain;
requirements relating to the appointment of a trustee, fiduciary or custodian;
requirements relating to the execution of trades and related transactions.

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