Page 84 - Profile's Unit Trusts & Collective Investments - March 2026

Chapter 5 Legislation and guidelines

The FSCA has already issued conduct standards applicable to collective investment schemes
which address, among other matters:
R The calculation and disclosure of net asset value (NAV) and pricing methodologies.
R The delegation and outsourcing of administrative and investment functions.
R Governance, risk management, compliance, and internal control requirements for CIS
managers.
R The identification, avoidance, and management of conflicts of interest.
R Portfolio design, approval, monitoring, and distribution practices.
R Disclosure requirements, including prospectus content and investor communication.
These standards are enforceable and form part of the regulatory obligations of CIS managers
alongside CISCA, FAIS (while in force), and FICA. Industry participants are expected to monitor the
publication of new and amended conduct standards on an ongoing basis.
Principles-based
The draft legislation specifies standards related to the intention of the regulation rather than lists of
compliance rules. The intention is to enable the regulator to focus on the spirit rather than the letter
of the law (ie, to monitor and enforce outcomes rather than procedures).
Outcomes-focused
The outcomes-based method to be implemented under the COFI Bill will mean that FSPs will not
just be measured on rules and compliance, but also on their ability to achieve good client outcomes.
This will include methods of assessing whether costs and charges are fair and justifiable.
Risk-based and proportionate
The COFI Bill pursues a risk-based approach to monitoring outcomes which will enable the
regulator to identify areas of greatest risk and address such risks in a proportional manner. The
objective is to create a fairer environment for institutions of differing sizes and encourage new
entrants into the market by reducing barriers to entry.
Transformation
The COFI Bill explicitly supports transformation, making the FSCA responsible for supporting
black-owned businesses that wish to provide financial products and services. The provisions of the
Bill also strengthen protection of vulnerable consumers.
Under the second draft of the COFI bill, an institution’s transformation policies need to specify
tangible targets. The second draft also allows the FSCA to use its enforcement powers in relation to
an institution’s governance and transformation frameworks.

The Financial Advisory and Intermediary Services
(FAIS) Act
Legislation to protect investors from bad investment advisers was first mooted in the early 1990s.
Before the implementation of the FAIS Act, only investment managers – people who actually invested
money on behalf of their clients – had to be registered with the FSCA, and gaps in legislation made
it possible for virtually anybody to set up shop as an adviser and begin giving advice. Due to the
absence of a coherent body of law, recourse in the event of disastrous advice often had to be made
in terms of common law, which proved costly and ineffective.
The public’s pereception of agents and brokers before the FAIS Act was promulgated were
summed up by the judge who led the commision into the failure of investor protection after the
collapse of the property debenture scheme master. In hard-hitting remarks assessing the need for
the legislation in an early draft of the FAIS Act, Judge Hendrik Nel said: “Most South African financial
advisers cannot distinguish between a prospectus and marketing information, are unaware of the
legal requirements relating to a prospectus, cannot read or understand financial statements, are
unable to assess institutional risk, and are unlikely to make intelligent inquiries about the nature of
the security underlying secured debentures”.

82 Profile’s Unit Trusts & Collective Investments March 2026