PRESENTATION BY THE
FINANCIAL SERVICES
BOARD TO THE
SELECT COMMITTEE
ON FINANCE
ON THE
COLLECTIVE INVESTMENT
SCHEMES CONTROL BILL
SCOPE OF THE CISC BILL
 THE BILL COVERS 4 TYPES OF
INSTITUTIONAL SCHEMES:
– SCHEMES IN SECURITIES – CURRENTLY
KNOWN AS “EQUITY UNIT TRUSTS”
(PART IV)
– FOREIGN SCHEMES (PART VIII)
– SCHEMES IN PROPERTY – COMMONLY
KNOWN AS “PUTS” (PART V)
– SCHEMES IN PARTICIPATION BONDS
(PART VI)
SCOPE OF THE CISC BILL
 PART VII OF THE BILL ENABLES THE
MINISTER TO DECLARE CERTAIN OTHER
TYPES OF BUSINESS COLLECTIVE
INVESTMENT SCHEMES THEREBY
BRINGING THEM INTO THE
REGULATORY NET
(SECTIONS 62 – 64)
 MINISTER CAN DEFINE THE ACTIVITY
AND MAY SET REGULATIONS
SCOPE OF THE CISC BILL
 THE REGISTRAR MAY ALSO
EXEMPT A SCHEME FROM THE ACT
WHEN IT IS IN THE PUBLIC
INTEREST
(SECTION 22)
 THE REGISTRAR MAY REFUSE TO
REGISTER A SCHEME
HISTORY OF THE SA CIS
LEGISLATION
 1947: ORIGINAL UNIT TRUST AND
PARTICIPATION BOND LEGISLATION
 AMENDMENTS:
–
–
–
–
–
INCLUSION OF DERIVATIVE INSTRUMENTS
(1993)
INTRODUCTION OF MONEY MARKET FUNDS
(1997)
INTRODUCTION OF “FUND OF FUNDS”
(1998)
DEREGULATION OF FEES AND CHARGES
(1998)
APPROVAL OF FOREIGN CIS (1998)
BACKGROUND TO THE NEED
FOR REVISED LEGISLATION
 1997: NEED RECOGNISED BY THE
FSB, THE ASSOCIATION OF UNIT
TRUSTS (AUT) AND THE
PARTICIPATION BOND INDUSTRY
THAT A MAJOR UPDATE WAS
NECESSARY TO BRING THE LEGAL
ENVIRONMENT INTO LINE WITH
INTERNATIONAL BEST PRACTICE.
BACKGROUND TO THE NEED
FOR REVISED LEGISLATION
 MAJOR ISSUES WERE:
– LOCAL INDUSTRY WAS AT A
DISADVANTAGE TO FOREIGN COMPETITION
– POLICY BOARD DECISION THAT ALL FORMS
OF CIS SHOULD BE INCLUDED IN ONE PIECE
OF LEGISLATION
– NEED TO ENHANCE DISCLOSURE
REQUIREMENTS TO INVESTORS
– TO GIVE REGISTRAR GREATER POWERS TO
ACT AGAINST NON COMPLIANCE
PROCESS

1997 – 1998
DELOITTE & TOUCHE SURVEY

1997
AUT/FSB WORKSHOP

1998
REPRESENTATIONS FORM PART BOND INDUSTRY

1998 – 1999
STEERING COMMITTEE DRAFTED

APRIL 1999 – JUNE 1999
CONSULTATION

MAY 1999
TWO PUBLIC WORKSHOPS

FEB 2000
SUBMITTED TO CABINET

APRIL 2000 TO JUNE 2000
FURTHER CONSULTATION
MAJOR CHANGES TO EXISTING
LEGISLATION:
SECURITIES UNIT TRUSTS
 NAME CHANGED TO CIS IN SECURITIES
 INTRODUCTION OF SECTION 2 WHICH
SETS THE GROUND RULES FOR A
MANAGER TO ACT HONESTLY AND
FAIRLY, WITH SKILL, CARE AND
DILIGENCE
 INTRODUCTION OF SECTION 3 ON
DISCLOSURE OF INFORMATION TO
INVESTORS
MAJOR CHANGES TO EXISTING
LEGISLATION:
SECURITIES UNIT TRUSTS
 INTRODUCTION OF SECTION 4 ON THE
DUTIES OF MANAGERS
 THE MINISTER MAY SET REGULATIONS
ON ANY MATTER REQUIRED OR
PERMITTED IN THE ACT INCLUDING
SECTIONS 2 – 4 (SECTION 114)
 INTRODUCTION OF OTHER LEGAL
STRUCTURES – OPEN-ENDED
INVESTMENT COMPANIES AND “IN
WHATEVER FORM” – SEE
DEFINITION OF CIS IN SECTION 1
MAJOR CHANGES TO EXISTING
LEGISLATION:
SECURITIES UNIT TRUSTS
 ENHANCEMENT OF TRUSTEE / CUSTODIAN
DUTIES (SECTION 70)
 REVISION OF CAPITAL REQUIREMENTS
[SECTION 88(1)]
 INTRODUCTION OF ABILITY TO LEND SCRIP –
SECTION 85 – PROVIDED THE DEED ENTITLES
THIS
 INTRODUCTION OF ABILITY FOR A FUND TO
BORROW MONEY TO BRIDGE LIQUIDITY
SQUEEZE:
– SECTION 96 – LIMITED TO 10% OF THE VALUE OF THE
PORTFOLIO
MAJOR CHANGES TO EXISTING
LEGISLATION:
SECURITIES UNIT TRUSTS
 INTRODUCTION OF THE ABILITY FOR THE
MANAGEMENT COMPANY TO SUSPEND
REPURCHASES WHERE THERE IS A
REDEMPTION DEMAND GREATER THAN 5% OF
THE VALUE OF THE PORTFOLIO:
– SECTION 114(3)(f) EMPOWERS THE REGISTRAR TO
SET CONDITIONS
– DRAFT CONDITIONS CIRCULATED
– WILL NOT APPLY TO INVESTORS WITH LESS THAN
R50 000 IN THE PORTFOLIO
– SHALL NOT APPLY IF 2 WEEKS NOTICE GIVEN
– MAXIMUM PERIOD OF SUSPENSION IS 20 BUSINESS
DAYS
MAJOR CHANGES TO EXISTING
LEGISLATION:
SECURITIES UNIT TRUSTS
 ENHANCEMENT OF REGISTRARS
ABILITY TO IMPOSE PENALTIES
(SECTION 18):
– FAILURE TO COMPLY WITH CAPITAL
REQUIREMENT – 3% OF SHORTFALL PER
DAY
– FAILURE TO COMPLY WITH OTHER
PRUDENTIAL REQUIREMENTS – 1% PER
DAY OR R1 MILLION
– FAILURE TO SUBMIT ANY RETURN – UP TO
R1 000 PER DAY
– THESE ARE OVER AND ABOVE CRIMINAL
SANCTION
MAJOR CHANGES TO EXISTING
LEGISLATION:
SECURITIES UNIT TRUSTS
 INTRODUCTION OF REGISTRARS
ABILITY TO DECLARE CERTAIN
PRACTICES OR MANNER OF
ADMINISTRATION UNDESIRABLE:
– WITH THE APPROVAL OF THE MINISTER
– 30 DAYS NOTICE IN THE GAZETTE
– NON COMPLIANCE IS AN OFFENCE –
2 YEARS PLUS FINE
MAJOR CHANGES TO EXISTING
LEGISLATION:
SECURITIES UNIT TRUSTS
 INTRODUCTION OF SECTIONS 106 AND 107
PROHIBITING FALSE OR MISLEADING
STATEMENTS OR FRAUDULENTLY INDUCING
A PERSON TO INVEST
 INTRODUCTION OF CIVIL LIABILITY FOR
CONTRAVENTIONS (SECTION 109):
– DAMAGES LIMITED TO TWICE THE PROFIT GAINED
OR LOSS AVOIDED
– REGISTRAR MAY ACT ON BEHALF OF AN INVESTOR
OR GROUP OF INVESTORS
– IN ADDITION TO CRIMINAL SANCTION
MAJOR CHANGES TO EXISTING
LEGISLATION:
SECURITIES UNIT TRUSTS
 POWERS OF DELEGATION SPECIFIED
IN SECTION 112
 INTRODUCTION OF SINGLE PRICING
(SECTION 94):
– EFFECTIVELY DOES AWAY WITH
“BUY/SELL PRICING”. NET ASSET VALUE
WILL BE GIVEN AND MAXIMUM ADDITIONAL
COSTS WILL BE SHOWN SEPARATELY
– “COMPULSORY CHARGE” DONE AWAY
WITH AS IT WAS CONFUSING
MAJOR CHANGES TO EXISTING
LEGISLATION:
PROPERTY UNIT TRUSTS
 NAME CHANGED TO COLLECTIVE
INVESTMENT SCHEME IN PROPERTY
 INVESTABLE ASSETS EXPANDED:
– SECTION 47(1) DIRECT HOLDING OF PROPERTY
NOW INCLUDED
– SECTION 47(2) REGISTRAR CAN DETERMINE OTHER
ASSETS
– SECTION 49 NON SOUTH AFRICAN PROPERTY CAN
BE INCLUDED SUBJECT TO SOVEREIGN RATING
DETERMINED BY THE REGISTRAR
 ABILITY TO BORROW FUNDS NOW INCLUDED:
– SECTION 95 – SUBJECT TO LIMITS AND CONDITIONS
IN THE DEED
MAJOR CHANGES TO EXISTING
LEGISLATION:
PARTICIPATION BONDS
 NAME CHANGED TO COLLECTIVE
INVESTMENT SCHEME IN
PARTICIPATION BONDS
 POOLING CONCEPT NOW INTRODUCED
– DEFINITION IN SECTION 52(1):
– PREVIOUSLY INVESTORS PARTICIPATED IN
SPECIFIC BONDS AND THEREFORE WERE
EXPOSED TO SPECIFIC RISK IN A
PARTICULAR PROPERTY. POOLING WILL
AFFORD BETTER INVESTOR PROTECTION
THROUGH SPREADING OF RISK
MAJOR CHANGES TO EXISTING
LEGISLATION:
FOREIGN CIS
 SECTION 66 INTRODUCED ON
RECIPROCITY. IF SOUTH AFRICAN
CIS’S ARE PRECLUDED FROM
OPERATING IN ANOTHER COUNTRY
THEN THE MINISTER MAY SUSPEND,
DISQUALIFY OR RESTRICT ANY
SCHEMES REGISTERED IN THAT
COUNTRY FROM OPERATING IN SOUTH
AFRICA
MAJOR CHANGES TO EXISTING
LEGISLATION:
GENERAL
 RECOGNITION OF INDUSTRY ASSOCIATIONS
AS SELF REGULATORY BODIES (SRO’S) PART
III AND SCHEDULE 4:
– THIS CONCEPT WAS INCLUDED IN THE
LEGISLATION THROUGH STRONG
REPRESENTATIONS FROM THE AUT
– AN ASSOCIATION CAN BE LICENSED ON
CONDITIONS THE REGISTRAR MAY DETERMINE
(SECTION 26). THE RULES OF THE ASSOCIATION
MUST COMPLY WITH THE ACT – REFER SCHEDULE 4
– AND MUST BE APPROVED BY THE REGISTRAR
26(c). THE REGISTRAR MUST BE SATISFIED THAT
THE INTERESTS OF THE PUBLIC WILL BE SERVED
BY THE ISSUE OR RENEWAL OF A LICENSE [26(D)]
MAJOR CHANGES TO EXISTING
LEGISLATION:
GENERAL
 RECOGNITION OF INDUSTRY ASSOCIATIONS
AS SELF REGULATORY BODIES (SRO’S) PART
III AND SCHEDULE 4:
– THE LICENSE MUST BE RENEWED EACH YEAR
(SECTION 27). THE LICENSE CAN BE CANCELLED OR
SUSPENDED (SECTION 28)
– EFFECTIVELY THE REGISTRAR RETAINS
“OVERSIGHT” OVER THE SRO AND HAS STRONG
POWERS TO INTERVENE IF THE SRO DOES NOT
EFFECTIVELY SUPERVISE COMPLIANCE
MAJOR CHANGES TO EXISTING
LEGISLATION:
FOREIGN CIS
 INTRODUCTION OF REQUIREMENT FOR
AUDITOR TO REPORT IRREGULARITIES
OR UNDESIRABLE PRACTICES TO THE
REGISTRAR
(SECTION 75)
 INTRODUCTION OF ABILITY FOR THE
REGISTRAR TO APPROVE THE
WINDING-UP OF A PORTFOLIO
(SECTION 102)
CONCLUSION
WE WOULD BE PLEASED TO
ANSWER ANY QUESTIONS
THANK YOU