Page 83 - Profile's Unit Trusts & Collective Investments - September 2025

Legislation and guidelines Chapter 5

Chapter 5

Legislation and guidelines
NQF
Relevant to
The need for regulation 242584: 1 - 4
It is an unfortunate fact that money attracts crooks, and the lure of big money can 242593: 1 - 4
change ordinary people into cheats. 243147: 3, 4
243155: 1, 3
The financial markets have, over the years, seen their fair share of swindlers and scam
artists. The losses to investors from various fraudulent schemes – from Masterbond in the 1990s, to
Jack Milne in early 2000 to Gary Tannenbaum in the late 2000s, Mirror Trading International in 2020
and BHI Trust in 2023 – investors have, over the decades, lost hundreds of 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:
R The Collective Investment Schemes Control Act 45 of 2002 (CISCA)
R The Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS Act)
R The Financial Intelligence Centre Act 38 of 2001 (FICA)
In addition, financial advisers 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 SA in line with best practice elsewhere in the world.
One important purpose of the Act was the facilitation of the development of investment options
such as hedge funds and open-ended investment companies (OEICs), bringing SA 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

Profile’s Unit Trusts & Collective Investments September 2025 81