Page 81 - Profile's Unit Trusts & Collective Investments - March 2026

Legislation and guidelines Chapter 5

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 current 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. While CISCA has been the core piece of legislation regulating unit trusts, it will
in future be amended to align with the COFI Act and conduct standards regulating the collective
investment scheme industry are already being issued under the FSR Act.
Ethical guidelines
CISCA 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:
R 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).
R 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.
R Managers must avoid conflicts of interest between themselves and investors, and must
disclose their own interests to investors.
R 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
R 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
R 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. However, the FSCA has also
already issued conduct standards under the FSR Act to enhance professionalism in the collective
investment scheme industry.

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