Financial Surveillance Department
2014-07-15
Guidelines: South African Institutional Investors
(a)
Institutions eligible for the foreign investment allowance
All retirement funds, long-term insurers and collective investment scheme
management companies are treated as institutional investors for exchange control
purposes. Institutional investors are eligible for the foreign portfolio investment
allowance and must comply with the reporting requirements outlined below.
Investment managers may elect to register with the Financial Surveillance
Department as institutional investors for exchange control purposes. Registration
is required for all investment managers wishing to invest funds offshore directly. To
register with the Financial Surveillance Department as an institutional investor, an
investment manager must be registered with the Financial Services Board as a
discretionary manager or else be a stockbroker with a discretionary mandate
registered with the JSE Limited. To be registered, the latest quarterly asset
allocation report must be submitted to the Financial Surveillance Department and
once the Financial Surveillance Department confirm that they are satisfied with the
information provided would the company automatically be registered as an
Investment Manager. Investment managers who have previously acquired foreign
assets under the exchange control allowance available to institutional investors, will
be automatically registered as an institutional investor with the Financial
Surveillance Department. Investment managers who are registered as institutional
investors, must also comply with the reporting requirements as outlined in
subsections (d) and (e) below.
Investment managers who are not eligible for the foreign investment allowance,
including all non-discretionary managers and discretionary managers, who elect
not to register as institutional investors with the Financial Surveillance Department,
will be able to acquire foreign exposure for their clients only through another
domestic institution. These investment managers are treated as intermediaries for
exchange control purposes and are exempt from the reporting requirements.
Investment managers are required to declare their status regarding registration
with the Financial Surveillance Department when they invest with another domestic
institution.
(b)
The distinction between retail assets and institutional assets
The reporting procedure requires that a distinction be made between institutional
assets under management and retail assets under management.
Institutional assets refer to assets held or managed on behalf of other institutional
investors.
2
Retail assets refer to assets received from individuals and other entities such as
companies, trusts, etc. and include assets received indirectly through an
intermediary, such as a linked investment service provider (LISP), nominee
company or investment manager not registered as an institutional investor with the
Financial Surveillance Department. All assets sourced from an intermediary must
be identified as either institutional assets or retail assets applicable to the
underlying client.
(c)
Application of foreign asset limits
The exchange control limit on foreign portfolio investment by institutional investors
will be applied to an institution’s total retail assets.
The foreign exposure of retail assets may not exceed 25% in the case of retirement
funds and the underwritten policy business of long-term insurers. Investment
managers registered as institutional investors for exchange control purposes,
collective investment scheme management companies and the investment-linked
business of long-term insurers are restricted to 35% of total retail assets under
management. It should be noted that compliance with the exchange control limits
on foreign portfolio investment does not preclude an institution from also having to
comply with any relevant prudential regulations as administered by the Financial
Services Board.
Authorised Dealers must ensure that when facilitating the transfer of funds on
behalf of institutional investors, where such funds represent retail assets under
management, the underlying retail clients’ accounts are not debited for conversion
purposes under any circumstances. A separate trust account, either in the name of
the managing institution or an unrelated third party, must be debited for this
purpose and the transaction must be reported in the name of the institutional
investor in terms of the requirements of the Reporting System.
Under no circumstances may retail clients have direct access to the offshore
assets and all assets abroad must be registered in the name of either an offshore
nominee company or the managing institution. The nominee company will hold the
beneficial ownership on behalf of retail clients resulting in the retail clients not being
able to transfer ownership of the offshore assets into their own names. It follows
therefore, that the only recourse that retail clients have to the managing institution,
is a domestic payment in Rand.
Institutional investors may participate in Rand instruments issued abroad or foreign
currency denominated instruments issued by local entities on condition that the
requirements of the Financial Services Board are complied with and that the
particular institutional investor remains within its applicable foreign portfolio
investment allowance.
Institutional investors are also permitted to hedge the currency risk in terms of
making portfolio investments offshore, i.e. hedging the anticipated conversion of
Rand into foreign currency for transfer offshore. The currency risk of the offshore
portfolio investment as well as the currency risk in respect of the repatriation of
funds may be hedged. However, the price risk of the underlying portfolio
investment may be hedged either in the foreign market or on the JSE Limited by
utilising approved foreign referenced derivative products traded in Rand and issued
by the JSE Limited.
3
Institutional investors may not transfer Rand offshore. In order for an institutional
investor to participate in Rand denominated instruments issued offshore, Rand
would have to be converted to foreign currency and the resultant foreign currency
be re-converted back to Rand in the offshore market to purchase the instrument.
The initial conversion of Rand to foreign currency for the purchase of Rand
denominated instruments issued offshore could be hedged, but the subsequent
conversion back to Rand to purchase Rand denominated instruments issued
offshore constitutes price risk and may only be hedged in the foreign market.
Institutional investors may not repatriate Rand to South Africa. Foreign currency
proceeds in respect of offshore portfolio investments must be converted to Rand in
South Africa with a local Authorised Dealer as the counterparty to the foreign
exchange transaction.
Whilst Authorised Dealers are not required to scrutinise the quarterly asset
allocation reports of institutional investors wishing to obtain foreign exposure,
Authorised Dealers are obliged to ensure that they are dealing with a legitimate
institutional investor. Therefore, prior to the transfer of any funds abroad,
Authorised Dealers must ensure that their clients are, indeed, registered with the
Financial Services Board by calling for their registration certificates. In addition,
institutional investors must provide the Authorised Dealers with documentary
evidence confirming the acceptance of their latest quarterly asset allocation reports
by the Financial Surveillance Department.
The provisions of Section A.3(B)(i) of the Rulings must also be adhered to, which
states that the provisions of Regulation 2(1) which expressly prohibits foreign
exchange transactions other than through an Authorised Dealer. Authorised
Dealers must ensure that foreign exchange is made available for legitimate
purposes only and must call for the production of documentary evidence. Such
documentary evidence must, in all instances where foreign exchange is made
available, be boldly endorsed “Exchange Provided”.
In instances where Authorised Dealers are unable to confirm the registration of an
institutional investor with the Financial Services Board and/or obtain proof of
acceptance of the quarterly asset allocation report, the matter must be referred to
the Financial Surveillance Department.
Foreign assets, for exchange control purposes, are defined as the sum of foreign
currency denominated assets and Rand denominated foreign assets, acquired
indirectly through investment with another domestic institution. To ensure the
consistent classification of foreign exposure, institutions are required to report their
assets on a “look-through” basis, as outlined below.
Where an institution manages funds on behalf of another institution, the managing
institution may, in principle, invest the funds of the originating institution offshore,
subject only to the mandate agreed with the originating institution or otherwise
outlined in the mandate of a pooled investment product. A managing institution is a
long-term insurer, collective investment scheme manager or investment manager,
which offers investment products to institutional and/or retail investors. An
originating institution is an institution which qualifies for a foreign investment
allowance that elects to invest in products offered by a managing institution, either
directly or through an intermediary such as a non-discretionary investment
manager or LISP.
Institutional investors must take cognisance that any position held as a result of
active currency management transactions, not resulting in the actual pay away or
receipt of currency, i.e. the “in-between trades”, is regarded as foreign exposure
and must, accordingly, be marked off against their respective foreign portfolio
investment allowances as well as being accounted for in the quarterly asset
allocation reports.
4
The originating institution or its administrator retains the responsibility for ensuring
that both its direct and indirect offshore investments are compliant with the
exchange control limits on foreign portfolio investments.
(d)
Reporting requirements
Reporting involves the submission of a quarterly report from all institutional
investors providing:
(aa)
Information on the allocation of assets according to the major asset classes;
and
(bb)
where relevant, information from institutions in excess of the foreign asset
limit on proposed portfolio adjustments to bring foreign asset levels back in
line.
In addition, managing institutions must include a list of their institutional clients.
(e)
Quarterly report
Institutional investors are required to submit quarterly reports of their asset
holdings as at the end of each calendar quarter. In the case of retirement funds,
the administrator must submit quarterly reports for each fund under its
administration, unless otherwise instructed by the retirement fund.
The quarterly reports provide the primary mechanism for monitoring exchange
control compliance. This framework will also support the shift to a system of
prudential regulation of the foreign asset exposure of long-term insurers and
retirement funds, as well as providing consistent, industry-wide statistics on the
foreign diversification levels for all types of institutions.
All quarterly reports must be submitted within three months of the end of the
calendar quarter to the Financial Surveillance Department either through an
Authorised Dealer or via bulk or single direct reporting.
(aa)
Reporting asset allocation
In reporting on asset allocations, a “look-through” principle is applied to
investments in collective investment schemes, long-term insurance policies
and other investment products. This principle ensures the consistent
classification of foreign asset exposure, whether acquired directly in foreign
currency or indirectly through a domestic intermediary. For instance, a
retirement fund holding foreign equities through a collective investment
scheme registered locally, should record such an investment as a Randdenominated foreign asset.
Managing institutions that manage assets on behalf of other institutions, are
required to report the asset allocation of such funds or policies to the
originating institution as at the end of each calendar quarter within one
month of each calendar quarter end. This information is necessary to
enable the originating institution to “look-through” to the underlying assets in
compiling its quarterly reports.
5
In the case of long-term insurers, collective investment scheme and
investment managers, the quarterly report requires institutions to report the
allocation of retail assets and the allocation of institutional assets under
management separately.
In the case of retirement funds the quarterly report relates to the allocation
of total assets of the retirement fund.
(bb)
Managing institutions’ information on institutional clients
Managing institutions are required to provide the Financial Surveillance
Department with a list of all their institutional investors per investment fund
on a quarterly basis.
In respect of each calendar quarter, managing institutions are required to
provide the Financial Surveillance Department with an updated list of
institutional clients, together with a list of:
(1)
All new institutional clients investing funds during the quarter; and
(2)
all institutional clients who terminated investments during the quarter.
The lists must be provided to the Financial Surveillance Department as part
of the managing institution’s quarterly report on asset holdings.
(cc)
Information required from institutions in excess of the foreign asset limit
Institutions that hold more than the maximum permitted exchange control
limits on foreign portfolio investments should provide:
(1)
An explanation for the contravention; and
(2)
a clear indication of how and by when the institution intends to adjust
its foreign asset holdings to fall within the exchange control limit on
foreign portfolio investments.
Where relevant, this information must be submitted to the Financial
Surveillance Department as part of the quarterly report on asset holdings.
(f)
Audit Requirements
Institutions holding portfolio assets, directly or indirectly, will also be required as
part of their financial year-end audit, to obtain an audit report from their external
auditors assessing the institution’s quarterly asset allocation reports.
All institutional investors with total assets at fair value in excess of R6 000 000 and
with financial year ends falling on 2005-06-30 and thereafter, will be required to
submit the audit report to the Financial Surveillance Department through their
Authorised Dealer. The audit reports must be submitted to the Financial
Surveillance Department within a maximum period of six months after financial
year end.
The formats of the audit reports follow hereunder:
6
“FOREIGN PORTFOLIO REPORTING REQUIREMENTS
FOREIGN PORTFOLIO INVESTMENTS BY SOUTH AFRICAN INSTITUTIONAL
INVESTORS – SECTION B.2(B)(iii) OF THE EXCHANGE CONTROL RULINGS
(B.2(B)(iii))
Preface
Institutional investors are required to submit quarterly asset allocation reports to the
Financial Surveillance Department of the South African Reserve Bank (Financial
Surveillance Department). The purpose of this guide is to provide illustrative
agreed-upon procedures reports for an auditor reporting on the quarterly asset
allocation reports.
Introduction
.01
B.2(B)(iii) sets out the objectives and principles as well as the reporting and
application requirements for institutions eligible for the foreign portfolio
investment allowance.
.02
Retirement funds, long-term insurers and collective investment scheme
management companies are treated as institutional investors for exchange
control purposes and have to comply with the requirements of above.
.03
Investment managers may elect to register with the Financial Surveillance
Department as institutional investors for exchange control purposes. The
investment managers who elected to register as institutional investors must
comply with the application and reporting requirements set out above.
Those investment managers, who elected not to register, are treated as
intermediaries for exchange control purposes and are exempt from the
requirements set out in above.
Quarterly report on asset allocation
.04
Institutional investors with portfolio assets, whether held directly or indirectly
through another domestic institution, are required to submit quarterly reports
of their asset allocation as at the end of each calendar quarter. The
quarterly reports provide the primary mechanism for monitoring exchange
control compliance and assessing applications. In reporting on asset
allocations, a "look-through" principle is applied to investments in collective
investments schemes, long-term insurance policies and other investment
products.
Agreed-upon procedures engagement
.05
Institutional investors whose total assets at fair value exceed R6 000 000
will be required, as part of their year-end audit/review, to engage an
independent registered auditor to perform agreed-upon procedures on the
quarterly asset allocation reports.
.06
The objective of an agreed-upon procedures engagement is for the
registered auditor to carry out procedures, to which the auditor, the entity
and any appropriate third parties have agreed, and to report on factual
findings.
7
.07
In order to ensure consistency of procedures and the resultant reports, the
Financial Surveillance Department has, in consultation with the Independent
Regulatory Board for Auditors (IRBA), The South African Institute of
Chartered Accountants (SAICA), the National Treasury and the Financial
Services Board, developed illustrative reports which set out the minimum
information required in the reports, including agreed-upon procedures that
should be performed in respect of the quarterly asset allocation reports. The
agreed-upon procedures and reports are set out in Appendices A to D. The
report is addressed to the trustees or directors as appropriate and the
procedures are agreed with them prior to the commencement of the work.
.08
The registered auditor complies with the code of professional conduct
issued by the IRBA and SAICA and conduct an agreed-upon procedures
engagement in accordance with the International Standard on Related
Services applicable to Engagements to Perform Agreed-upon Procedures
Regarding Financial Information.
.09
The registered auditor prepares an engagement letter documenting the key
terms of the appointment. An engagement letter confirms the registered
auditor's acceptance of the appointment and helps avoid misunderstanding
regarding such matters as the objectives and scope of the engagement, the
extent of the auditor's responsibilities and the form of report to be issued.
.10
It is the responsibility of the trustees or directors to provide the reports, and
if applicable detailed explanations of exceptions noted and proposed
corrective actions, to the Financial Surveillance Department.
FOREIGN PORTFOLIO REPORTING REQUIREMENTS
APPENDIX A
[Set out below are the agreed-upon procedures and report of the registered
independent auditor on factual findings applicable to retirement funds.]
FACTUAL FINDINGS REPORT OF THE REGISTERED INDEPENDENT
AUDITOR TO THE BOARD OF TRUSTEES IN TERMS OF SECTION B.2(B)(iii)
OF THE EXCHANGE CONTROL RULINGS (B.2(B)(iii))
Scope
We have performed the procedures agreed with you and enumerated below with
respect to the quarterly asset allocation reports in terms of B.2(B)(iii) and related
reconciliations of (insert name of fund) for the year ended (insert date). We have
initialled the attached quarterly asset allocation reports for identification purposes.
Our engagement was undertaken in accordance with the International Standard on
Related Services applicable to Engagements to Perform Agreed-Upon Procedures
Regarding Financial Information. The responsibility for determining the adequacy
or otherwise of the procedures agreed to be performed is that of the Board of
Trustees. The procedures were performed solely to assist you in complying with
the reporting requirements of B.2(B)(iii) in respect of the quarterly reports on asset
allocations.
The fund (or the fund's administrator) supplied us with the following:

Copies of the quarterly asset allocation reports for the quarters ended (insert
8
dates).

Copies of investment certificates for the last quarter before or on the financial
year-end.

A list of investments and/or the general ledger in respect of investments held
directly.

A reconciliation of the last quarterly asset allocation report before or on the
financial year-end to investment certificates and the list of direct investments
and/or the general ledger.

A reconciliation of the last quarterly asset allocation report before or on the
financial year-end to the amounts disclosed in the audited/reviewed financial
statements.
This reconciliation discloses the movement in balances,
distinguishing between new amounts invested, disinvestments, income and
unrealised profit or loss and other movements. This reconciliation is attached
as Annexure A to the factual findings report.
The procedures are summarised as follows:
[The procedures should be tailored where necessary to reflect any specific
circumstances and any additional procedures performed.]
1. We inspected each of the four quarterly asset allocation reports to observe
whether they were duly certified by the authorised official and submitted within
three months after the respective quarter end.
2. Using the investment certificates received by the fund for the last quarter before
or on the financial year-end, we:
2.1 agreed the classification of assets and their fair value as reflected in asset
classes A to F of the quarterly asset allocation report to the investment
certificates, list of direct investments and/or the general ledger;
2.2 agreed the classification between local and foreign assets as per the
quarterly asset allocation report to the investment certificates, list of direct
investments and/or the general ledger.
3. We re-performed the calculation of the African allowance as reflected in
category G.1 and the foreign asset holding percentages as reflected in
categories H and I of the last quarterly asset allocation report before or on the
financial year-end.
4. We agreed the reconciliation of the last quarterly asset allocation report before
or on the financial year-end to the audited/reviewed annual financial statements
and examined the evidence for reconciling items. (Annexure A)
5. We observed whether the amounts have been recorded in R'000.
Findings
[The findings should be tailored where necessary to reflect the specific
circumstances, procedures performed, findings and exceptions noted.]
9
We report our findings below, detailing:
1. With respect to item 1 we found that the quarterly returns were/were not duly
certified by the authorised official and submitted within three months of the
quarter end.
2. For the last quarterly asset allocation report:
2.1 With respect to item 2.1 we found that the classification of assets and their
fair value as reflected in asset classes A to F of the quarterly asset
allocation report agreed/did not agree to the investment certificates, list of
direct investments and/or the general ledger; and
2.2
With respect to item 2.2 we found that the classification between local and
foreign assets as per the quarterly asset allocation report agreed/did not
agree to the investment certificates, list of direct investments and/or the
general ledger.
3. With respect to item 3 we found that the African allowance as reflected in
category G.1 and the foreign holding percentages as reflected in categories H
and I of the last quarterly asset allocation report were/were not calculated
correctly.
4. With respect to item 4 we found that the reconciliation of the last quarterly asset
allocation report before or on the financial year-end agreed/did not agree to the
audited/reviewed financial statements and investment certificates. Reconciling
items on the reconciliations agreed/did not agree to transactions on investment
statements subsequent to the last quarterly asset allocation report. (Annexure
A)
5. With respect to item 5 we found that the amounts on the returns were/were not
recorded in R'000.
Because the above procedures do not constitute either an audit or a review made
in accordance with International Standards on Auditing or International Standards
on Review Engagements, we do not express any assurance on the quarterly asset
allocation reports for the year ended (insert date).
Had we performed additional procedures or had we performed an audit or review of
the financial statements in accordance with International Standards on Auditing or
International Standards on Review Engagements, other matters might have come
to our attention that would have been reported to you.
Our report is solely for the purpose set out in the first paragraph of this report and
for your information, and is not to be used for any other purpose, or to be
distributed to any other parties, other than the Financial Services Board and the
Financial Surveillance Department.
This report relates only to the asset allocation report and items specified above,
and does not extend to any financial statements of (insert funds name), taken as a
whole.
10
Name of Firm
Registered auditor
<Signed by partner / director>
Name of partner / director responsible
Chartered Accountant (SA)
Registered Auditor
Director (if applicable in terms of the Companies Act)
Address (if not on letterhead)
Date
11
FOREIGN PORTFOLIO REPORTING REQUIREMENTS
APPENDIX B
[Set out below are the agreed-upon procedures and the report of the
registered independent auditor on factual findings applicable to long-term
insurers.]
FACTUAL FINDINGS REPORT OF THE REGISTERED INDEPENDENT
AUDITOR TO THE DIRECTORS IN TERMS OF SECTION B.2(B)(iii) OF THE
EXCHANGE CONTROL RULINGS (B.2(B)(iii))
Scope
We have performed the procedures agreed with you and enumerated below with
respect to the quarterly asset allocation reports in terms of B.2(B)(iii) and related
reconciliations of (insert name of company) for the year ended (insert date). We
have initialled the attached quarterly asset allocation reports for identification
purposes. Our engagement was undertaken in accordance with the International
Standard on Related Services applicable to Engagements to Perform Agreed-Upon
Procedures Regarding Financial Information.
The responsibility for determining the adequacy or otherwise of the procedures
agreed to be performed is that of the directors. The procedures were performed
solely to assist you in complying with the reporting requirements of B.2(B)(iii) in
respect of the quarterly reports on asset allocations.
The directors supplied us with the following:

Copies of the quarterly asset allocation reports for the quarters ended (insert
dates).

Copies of the investment certificates for the last quarter before or on the
financial year-end.

A list of investments and/or the general ledger in respect of investments held
directly.
A reconciliation of the last quarterly asset allocation report before or on the
financial year-end to investment certificates, list of direct investments and/or the
general ledger.


A reconciliation of the last quarterly asset allocation report before or on the
financial year-end to the amounts disclosed in the audited financial statements.
This reconciliation discloses the movement in balances distinguishing between
new amounts invested, disinvestments, income and unrealised profit or loss
and other movements. This reconciliation is attached as Annexure A to the
factual findings report.

A listing of the investors that are considered to be institutional investors during
each quarter and institutional investors who terminated investments during
each quarter as provided to the Financial Surveillance Department.

A listing of the institutions which issued investment certificates in respect of
institutional assets.
12
The procedures are summarised as follows:
[The procedures should be tailored where necessary to reflect any specific
circumstances and any additional procedure performed.]
1. We inspected each of the four quarterly asset allocation reports to observe
whether they were duly certified by the authorised official and submitted within
three months after the respective quarter end.
2. Using the investment certificates supplied by the directors, for the last quarter
before or on the financial year-end, we:
2.1 agreed the classification of assets and their fair value as reflected in asset
classes A to F of the quarterly asset allocation report to the investment
certificates, list of direct investments and/or the general ledger;
2.2 agreed the classification between institutional and retail assets as per the
quarterly asset allocation report to the investment certificates, list of direct
investments and/or the general ledger; and
2.3 agreed the classification between Rand denominated assets, foreign
assets and foreign currency denominated assets in respect of institutional
and retail assets as per the quarterly asset allocation report to the
investment certificates, list of direct investments and/or the general ledger.
3. We re-performed the calculation of the African allowance as reflected in
category G.1 and the foreign asset holding percentages as reflected in
categories H, I, J and K of the last quarterly asset allocation report before or on
the financial year-end.
4. We agreed the reconciliation of the last quarterly asset allocation report before
or on the financial year-end to the audited annual financial statements and
examined the evidence for reconciling items. (Annexure A)
5. For the last quarterly report we selected a sample of the lesser of 25 or 30%
individual investments from the analyses provided above by management for
each class of assets (A to F) for each of the following categories for both
institutional and retail investors:



Rand denominated domestic assets;
Rand denominated foreign assets; and
Foreign currency denominated assets.
For each item selected above, we:
5.1 agreed the investments to statements or confirmations from custodians of
scrip or statements or direct confirmations from the counterparty for other
investments;
5.2 inspected the valuation of the investment and agreed that they were
valued at fair value; and
5.3 agreed that foreign assets were translated at the relevant exchange rates
ruling at the end of each quarter.
13
6. We selected a sample of the lesser of 25 or 30% of institutional investors from
the analyses provided by management for the last quarter and agreed that the
institution has been disclosed as an institution on the list of institutional
investors provided to the Financial Surveillance Department for that quarter.
7. We selected a sample of the lesser of 25 or 30% of institutions which issued
investment certificates in respect of institutional assets and inspected evidence
that the institutions are retirement funds, long-term insurers, collective
investment scheme management companies or registered investment
managers (if applicable).
8. We observed whether the amounts have been recorded in R'000.
Findings
[The findings should be tailored where necessary to reflect the specific
circumstances, procedures performed, findings and exceptions noted.]
We report our findings below, detailing:
1. With respect to item 1 we found that the quarterly returns were/were not duly
certified by the authorised official and submitted within three months of the
quarter end.
2. For the last quarterly asset allocation report:
2.1 With respect to item 2.1 we found that the classification of assets and their
fair value as reflected in asset classes A to F of the quarterly asset
allocation report agreed/did not agree to the investment certificates, list of
direct investments and/or the general ledger;
2.2 With respect to item 2.2 we found that the classification between
institutional and retail assets as per the quarterly asset allocation report
agreed/did not agree to the investment certificates, list of
direct
investments and/or the general ledger; and
2.3 With respect to item 2.3 we found that the classification between Rand
denominated assets, foreign assets and foreign currency denominated
assets in respect of institutional and retail assets as per the quarterly asset
allocation report agreed/did not agree to the investment certificates, list of
direct investments and/the or general ledger.
3. With respect to item 3 we found that the African allowance as reflected in
category G.1 and the foreign holding percentages as reflected in categories H,
I, J and K of the last quarterly asset allocation report were/were not calculated
correctly.
4. With respect to item 4 we found that the reconciliation of the last quarterly asset
allocation report before or on the financial year-end agreed/did not agree to the
audited financial statements and investment certificates. Reconciling items on
the reconciliations agreed/did not agree to transactions on investment
statements subsequent to the last quarterly asset allocation report. (Annexure
A)
14
5. For the items selected:
5.1 With respect to item 5.1 we found that the investments agreed/did not
agree to statements or confirmations from custodians of scrip or
statements or direct confirmations from the counterparty for other
investments;
5.2 With respect to item 5.2 we found that the investments were/were not
valued at fair value; and
5.3 With respect to item 5.3 we found that the foreign assets were/were not
translated at the relevant exchange rates ruling at the end of each quarter.
6. With respect to item 6 we found that the institutions were/were not disclosed as
institutions on the list of institutional investors provided to the Financial
Surveillance Department for the quarter.
7. With respect to item 7 we found that the institutions selected were/were not
retirement funds, long-term insurers, collective investment scheme
management companies or investment managers (if applicable).
8. With respect to item 8 we found that the amounts on the returns were/were not
recorded in R'000.
Because the above procedures do not constitute either an audit or a review made
in accordance with International Standards on Auditing or International Standards
on Review Engagements, we do not express any assurance on the quarterly asset
allocation reports for the year ended (insert date).
Had we performed additional procedures or had we performed an audit or review of
the financial statements in accordance with International Standards on Auditing or
International Standards on Review Engagements, other matters might have come
to our attention that would have been reported to you.
Our report is solely for the purpose set out in the first paragraph of this report and
for your information, and is not to be used for any other purpose or to be distributed
to any other parties other than the Financial Services Board and the Financial
Surveillance Department.
This report relates only to the asset allocation report and items specified above and
does not extend to any financial statements of (insert name of company) taken as a
whole.
Name of Firm
Registered auditor
<Signed by partner / director>
Name of partner / director responsible
Chartered Accountant (SA)
Registered Auditor
Director (if applicable in terms of the Companies Act)
Address (if not on letterhead)
Date
15
FOREIGN PORTFOLIO REPORTING REQUIREMENTS
APPENDIX C
[Set out below are the agreed-upon procedures and the report of the
registered independent auditor on factual findings applicable to investment
managers.]
FACTUAL FINDINGS REPORT OF THE REGISTERED INDEPENDENT
AUDITOR TO THE DIRECTORS IN TERMS OF SECTION B.2(B)(iii) OF THE
EXCHANGE CONTROL RULINGS (B.2(B)(iii))
Scope
We have performed the procedures agreed with you and enumerated below with
respect to the quarterly asset allocation reports in terms of B.2(B)(iii) and related
reconciliations of (insert name of company) for the year ended (insert date). We
have initialled the attached quarterly asset allocation reports for identification
purposes.
Our engagement was undertaken in accordance with the International Standard on
Related Services applicable to Engagements to Perform Agreed-Upon Procedures
Regarding Financial Information. The responsibility for determining the adequacy
or otherwise of the procedures agreed to be performed is that of the directors. The
procedures were performed solely to assist you in complying with the reporting
requirements of B.2(B)(iii) in respect of the quarterly reports on asset allocations.
The directors supplied us with the following:

Copies of the quarterly asset allocation reports for the quarters ended (insert
dates).

Copies of the investment certificates for the last quarter before or on the
financial year-end.
A reconciliation of the last quarterly asset allocation report before or on the
financial year-end to investment certificates and/or the general ledger.


A reconciliation of the last quarterly asset allocation report before or on the
financial year-end to the amounts disclosed in the audited financial statements.
This reconciliation discloses the movement in balances distinguishing between
new amounts invested, disinvestments, income and unrealised profit or loss
and other movements. This reconciliation is attached as Annexure A to the
factual findings report.

A listing of the investors that are considered to be institutional investors during
each quarter and institutional investors who terminated investments during
each quarter as provided to the Financial Surveillance Department.

A listing of the institutions which issued investment certificates in respect of
institutional assets.
The procedures are summarised as follows.
[The procedures should be tailored where necessary to reflect any specific
16
circumstances and any additional procedures performed.]
1. We inspected each of the four quarterly asset allocation reports to observe
whether they were duly certified by the authorised official and submitted within
three months after the respective quarter-end.
2. Using the investment certificates supplied by the directors, for the last quarter
before or on the financial year-end, we:
2.1 agreed the classification of assets and their fair value as reflected in asset
classes A to E of the quarterly asset allocation report to the investment
certificates and/or the general ledger;
2.2 agreed the classification between institutional and retail assets as per the
quarterly asset allocation report to the investment certificates and/or the
general ledger; and
2.3 agreed the classification between Rand denominated assets, foreign
assets and foreign currency denominated assets in respect of institutional
and retail assets as per the quarterly asset allocation report the investment
certificates, list of direct investments and/or the general ledger.
3. We re-performed the calculation of the African allowance as reflected in
category F.1 and the foreign asset holding percentages as reflected in
categories G, H, I and J of the last quarterly asset allocation report before or on
the financial year-end.
4. We agreed the reconciliation of the last quarterly asset allocation report before
or on the financial year-end to the audited annual financial statements and
examined the evidence for reconciling items. (Annexure A)
5. For the last quarterly report we selected a sample of the lesser of 25 or 30%
individual investments from the analyses provided above by management for
each class of assets (A to E) for each of the following categories for both
institutional and retail investors:



Rand denominated domestic assets;
Rand denominated foreign assets; and
Foreign currency denominated assets.
For each item selected above, we:
5.1 agreed the investments to statements or confirmations from custodians of
scrip or statements or direct confirmations from the counterparty for other
investments;
5.2 inspected the valuation of the investment and agreed that they were
valued at fair value; and
5.3 agreed that foreign assets were translated at the relevant exchange rates
ruling at the end of each quarter.
6. We selected a sample of the lesser of 25 or 30% of institutional investors from
the analyses provided by management for the last quarter and agreed that the
institution has been disclosed as an institution on the list of institutional
investors provided to the Financial Surveillance Department for that quarter.
17
7. We selected a sample of the lesser of 25 or 30% of institutions which issued
investment certificates in respect of institutional assets and inspected evidence
that the institutions are retirement funds, long-term insurers, collective
investment scheme management companies or registered investment
managers (if applicable).
8. We observed whether the amounts have been recorded in R'000.
Findings
[The findings should be tailored where necessary to reflect the specific
circumstances, procedures performed, findings and exceptions noted.]
We report our findings below, detailing:
1. With respect to item 1 we found that the quarterly returns were/were not duly
certified by the authorised official and submitted within three months after the
quarter end.
2. For the last quarterly asset allocation report:
2.1 With respect to item 2.1 we found that the classification of assets and their
fair value as reflected in asset classes A to E of the quarterly asset
allocation report agreed/did not agree to the investment certificates and/or
the general ledger;
2.2 With respect to item 2.2 we found that the classification between
institutional and retail assets as per the quarterly asset allocation report
agreed/did not agree to the investment certificates and/or the general
ledger; and
2.3 With respect to item 2.3 we found that the classification between Rand
denominated assets, foreign assets and foreign currency denominated
assets in respect of institutional and retail assets as per the quarterly asset
allocation report agreed/did not agree to the investment certificates and/or
the general ledger.
3. With respect to item 3 we found that the African allowance as reflected in
category F.1 and the foreign asset holding percentages as reflected in
categories G, H, I and J of the last quarterly asset allocation report were/were
not calculated correctly.
4. With respect to item 4 we found that the reconciliation of the last quarterly asset
allocation report before or on the financial year-end agreed/did not agree to the
audited annual financial statements. Reconciling items on the reconciliation
agreed/did not agree to transactions on investment statements subsequent to
the last quarterly asset allocation report. (Annexure A)
5. For the items selected:
5.1 With respect to item 5.1 we found that the investments agreed/did not
agree to statements confirmations from custodians of scrip or statements
or direct confirmations from the counterparty for other investments;
18
5.2 With respect to item 5.2 we found that the investments were/were not
valued at far value; and
5.3 With respect to item 5.3 we found that the foreign assets were/were not
translated at the relevant exchange rates ruling at the end of each quarter.
6. With respect to item 6 we found that the institutions were/were not disclosed as
institutions on the list of institutional investors provided to the Financial
Surveillance Department for the quarter.
7. With respect to item 7 we found that the institutions selected were/were not
retirement funds, long-term insurers, collective investment scheme
management companies or investment managers (if applicable).
8. With respect to item 8 we found that the amounts on the returns were/were not
recorded in R'000.
Because the above procedures do not constitute either an audit or a review made
in accordance with International Standards on Auditing or International Standards
on Review Engagements we do not express any assurance on the quarterly asset
allocation reports for the year ended (insert date).
Had we performed additional procedures or had we performed an audit or review of
the financial statements in accordance with International Standards on Auditing or
International Standards on Review Engagements other matters might have come
to our attention that would have been reported to you.
Our report is solely for the purpose set out in the first paragraph of this report and
for your information and is not to be used for any other purpose or to be distributed
to any other parties other than the Financial Services Board and the Financial
Surveillance Department. This report relates only to the asset allocation report and
items specified above and does not extend to any financial statements of (insert
name of company) taken as a whole.
Name of Firm
Registered auditor
<Signed by partner / director>
Name of partner / director responsible
Chartered Accountant (SA)
Registered Auditor
Director (if applicable in terms of the Companies Act)
Address (if not on letterhead)
Date
FOREIGN PORTFOLIO REPORTING REQUIREMENTS
APPENDIX D
[Set out below are the agreed-upon procedures and the report of the
registered independent auditor on factual findings applicable to collective
investment scheme management companies.]
19
FACTUAL FINDINGS REPORT OF THE REGISTERED INDEPENDENT
AUDITOR TO THE DIRECTORS IN TERMS OF SECTION B.2(B)(iii) OF THE
EXCHANGE CONTROL RULINGS (B.2(B)(iii))
Scope
We have performed the procedures agreed with you and enumerated below with
respect to the quarterly asset allocation reports in terms of B.2(B)(iii) and related
reconciliations of (insert name of company) for the year ended (insert date). We
have initialled the attached quarterly asset allocation reports for identification
purposes. Our engagement was undertaken in accordance with the International
Standard on Related Services applicable to Engagements to Perform Agreed-Upon
Procedures Regarding Financial Information. The responsibility for determining the
adequacy or otherwise of the procedures agreed to be performed is that of the
directors. The procedures were performed solely to assist you in complying with
the reporting requirements in respect of the quarterly reports on asset allocations.

Copies of the quarterly asset allocation reports for the quarters ended (insert
dates).

Copies of the investment certificates for the last quarter before or on the
financial year-end.

A reconciliation of the last quarterly asset allocation report before or on the
financial year-end to investment certificates, list of direct investments and/or the
general ledger.

A reconciliation of the last quarterly asset allocation report before or on the
financial year-end to the amounts disclosed in the audited financial statements.
This reconciliation discloses the movement in balances distinguishing between
new amounts invested, disinvestments, income and unrealised profit or loss
and other movements.
This reconciliation is attached as Annexure A to the factual findings report.

A listing of the investors that are considered to be institutional investors during
each quarter and institutional investors who terminated investments during
each quarter as provided to the Financial Surveillance Department.

A listing of the institutions which issued investment certificates in respect of
institutional assets.
The procedures are summarised as follows:
[The procedures should be tailored where necessary to reflect any specific
circumstances and any additional procedure performed.]
1. We inspected each of the four quarterly asset allocation reports to observe
whether they were duly certified by the authorised official and submitted within
three months after the respective quarter end.
2. Using the investment certificates supplied by the directors, for the last quarter
before or on the financial year-end, we:
20
2.1 agreed the classification of assets and their fair value as reflected in asset
classes A to F of the quarterly asset allocation report to the investment
certificates and/or the general ledger;
2.2 agreed the classification between institutional and retail assets as per the
quarterly asset allocation report to the investment certificates and/or the
general ledger; and
2.3 agreed the classification between Rand denominated assets, foreign
assets and foreign currency denominated assets in respect of institutional
and retail assets as per the quarterly asset allocation report to the
investment certificates and/or the general ledger.
3. We re-performed the calculation of the African allowance as reflected in
category G.1 and the foreign asset holding percentages as reflected in
categories H, I, J and K of the last quarterly asset allocation report before or on
the financial year-end.
4. We agreed the reconciliation of the last quarterly asset allocation report before
or on the financial year-end to the audited annual financial statements and
examined the evidence for reconciling items. (Annexure A)
5. For the last quarterly report we selected a sample of the lesser of 25 or 30%
individual investments from the analyses provided above by management for
each class of assets (A to F) for each of the following categories for both
institutional and retail investors:



Rand denominated domestic assets;
Rand denominated foreign assets; and
Foreign currency denominated assets.
For each item selected above, we:
5.1 agreed the investments to statements or confirmations from custodians of
scrip or statements or direct confirmations from the counterparty for other
investments;
5.2 inspected the valuation of the investment and agreed that they were
valued at fair value; and
5.3 agreed that foreign assets were translated at the relevant exchange rates
ruling at the end of each quarter.
6. We selected a sample of the lesser of 25 or 30% of institutional investors from
the analyses provided by management for the last quarter and agreed that the
institution has been disclosed as an institution on the list of institutional
investors provided to the Financial Surveillance Department for that quarter.
7. We selected a sample of the lesser of 25 or 30% of institutions which issued
investment certificates in respect of institutional assets and inspected evidence
that the institutions are retirement funds, long-term insurers, collective
investment scheme management companies or registered investment
managers (if applicable).
8. We observed whether the amounts have been recorded in R'000.
21
Findings
[The findings should be tailored where necessary to reflect the specific
circumstances, procedures performed, findings and exceptions noted.]
We report our findings below, detailing:
1. With respect to item 1 we found that the quarterly returns were/were not duly
certified by the authorised official and submitted within three months of the
quarter end.
2. For the last quarterly asset allocation report:
2.1 With respect to item 2.1 we found that the classification of assets and their
fair value as reflected in asset classes A to F of the quarterly asset
allocation report agreed/did not agree to the investment certificates, list of
direct investments and/or the general ledger;
2.2 With respect to item 2.2 we found that the classification between
institutional and retail assets as per the quarterly asset allocation report
agreed/did not agree to the investment certificates, list of
direct
investments and/or the general ledger; and
2.3 With respect to item 2.3 we found that the classification between Rand
denominated assets, foreign assets and foreign currency denominated
assets in respect of institutional and retail assets as per the quarterly asset
allocation report agreed/did not agree to the investment certificates, list of
direct investments and/the or general ledger.
3. With respect to item 3 we found that the African allowance as reflected in
category G.1 and the foreign holding percentages as reflected in categories H,
I, J and K of the last quarterly asset allocation report were/were not calculated
correctly.
4. With respect to item 4 we found that the reconciliation of the last quarterly asset
allocation report before or on the financial year-end agreed/did not agree to the
audited financial statements and investment certificates. Reconciling items on
the reconciliations agreed/did not agree to transactions on investment
statements subsequent to the last quarterly asset allocation report. (Annexure
A)
5. For the items selected:
5.1 With respect to item 5.1 we found that the investments agreed/did not
agree to statements or confirmations from custodians of scrip or
statements or direct confirmations from the counterparty for other
investments;
5.2 With respect to item 5.2 we found that the investments were/were not
valued at fair value; and
5.3 With respect to item 5.3 we found that the foreign assets were/were not
translated at the relevant exchange rates ruling at the end of each quarter.
22
6. With respect to item 6 we found that the institutions were/were not disclosed as
institutions on the list of institutional investors provided to the Financial
Surveillance Department for the quarter.
7. With respect to item 7 we found that the institutions selected were/were not
retirement funds, long-term insurers, collective investment scheme
management companies or investment managers (if applicable).
8. With respect to item 8 we found that the amounts on the returns were/were not
recorded in R'000.
Because the above procedures do not constitute either an audit or a review made
in accordance with International Standards on Auditing or International Standards
on Review Engagements, we do not express any assurance on the quarterly asset
allocation reports for the year ended (insert date).
Had we performed additional procedures or had we performed an audit or review of
the financial statements in accordance with International Standards on Auditing or
International Standards on Review Engagements, other matters might have come
to our attention that would have been reported to you.
Our report is solely for the purpose set out in the first paragraph of this report and
for your information, and is not to be used for any other purpose or to be distributed
to any other parties other than the Financial Services Board and the Financial
Surveillance Department. This report relates only to the asset allocation report and
items specified above and does not extend to any financial statements of (insert
name of company) taken as a whole.
Name of Firm
Registered auditor
<Signed by partner / director>
Name of partner / director responsible
Chartered Accountant (SA)
Registered Auditor
Director (if applicable in terms of the Companies Act)
Address (if not on letterhead)
Date
(g)
Compliance
Institutions exceeding exchange control limits are required to provide an
explanation for the contravention and to propose corrective measures. This
requirement is part of the quarterly report on asset holdings.
The Financial Surveillance Department will consider the reasons for contravention
and the proposed corrective measures. If these measures are deemed to be
unacceptable, the Financial Surveillance Department will issue further directives
that may include the repatriation of income and/or capital.
23
Compliance with the reporting requirements as outlined in subsections (d) and (e)
above will be enforced as outlined hereunder.
The Exchange Control Regulation 18 states:
“PROVISION OF SECURITY
18.
(1)
The Treasury or a person authorised by the Treasury, may order
any person to provide security, in such form and in such amount as
the Treasury may determine, that he will comply, either generally or
in respect of any particular transaction, with the provisions of any of
these regulations specified by the Treasury or by a person
authorised by the Treasury.
(2)
Where any person who has provided security in terms of this
regulation, has failed to comply with the provisions of the
regulations in respect of which the security has been provided, the
Treasury may direct that the said security shall be forfeited for the
benefit of the National Revenue Fund.
The forfeiture of such security shall not prevent any other action against
the person concerned for his failure to comply with the provisions of these
regulations.”
Under the provisions of this Regulation, the following payments may apply:
(i)
Non-submission of quarterly report, and/or list of institutional
clients, including quarterly reports to be submitted by
retirement fund administrators
Two per cent of the market value of foreign assets to be
deposited in foreign currency with the South African Reserve
Bank by purchasing such foreign currency in the spot
market. The deposit will be non-interest bearing and will be
included as a foreign asset in the calculation of the
institution’s foreign exposure.
Once the Financial
Surveillance Department is satisfied that all the outstanding
quarterly returns and/or lists of institutional clients have been
received, the deposit will be returned to the institution
concerned.
Such deposit must, however, be converted back to Rand in
cases where the institution is exceeding the exchange
control limit.
In cases where retirement fund administrators do not submit
reports on behalf of their clients, such administrator will be
liable for the payment of the penalty.
24
(ii)
Non-submission of quarterly asset allocation information by
the managing institution to the originating institution
Two per cent of the market value of the assets of the
affected originating institution(s) placed with the managing
institution to be deposited by the managing institution in
Rand with the South African Reserve Bank. The deposit will
be non-interest bearing.
Once the Financial Surveillance Department is satisfied that
all outstanding quarterly asset allocation information has
been communicated to the affected originating institution(s),
the deposit will be returned to the managing institution.
(iii)
Exceeding the limits as a result of market movements and/or
a reclassification of assets without corrective measures
being in place.
Five per cent of the market value of the foreign assets to be
deposited in foreign currency with the South African Reserve
Bank by purchasing such foreign currency in the spot
market. The deposit will be non-interest bearing. Once the
Financial Surveillance Department is satisfied that sufficient
corrective measures are in place or the institution is within
the applicable limit, the deposit will be returned to the
institution concerned for conversion back to Rand.
(iv)
Direct contravention of the exchange control limits on foreign
assets, including misrepresentation of facts in certifying
exchange control compliance via the quarterly reports.
Five per cent of the market value of the foreign assets to be
deposited in foreign currency with the South African Reserve
Bank by purchasing such foreign currency in the spot
market. The deposit will be non-interest bearing and will
have a tenor of twelve months, after which such deposit will
be returned to the institution concerned. However, should
the institution be involved in any misconduct or in breach of
the limits during the period stated, the deposit will be
forfeited for the benefit of the National Revenue Fund.
(h)
Reporting format
The quarterly asset allocation reports may be submitted to the Financial
Surveillance Department either through an Authorised Dealer or by direct reporting.
The template for quarterly reporting is available for downloading from the South
African Reserve Bank website. Alternatively, for single direct reporting the
interactive web-page may be accessed at www.reservebank.co.za by following the
links: Home>Regulation and supervision>Financial surveillance and exchange
controls>Online Services>Electronic Submission of Asset Allocation Reports.
25
In addition, technical specifications enabling retirement fund administrators to
report electronically in bulk format have been developed. Retirement fund
administrators wishing to make use of this facility must generate a request by
submitting
an
e-mail
message
to
the
following
address:
sarbportfolio@resbank.co.za. The subject field must contain the following wording:
“Request for bulk reporting specifications”. On receipt of the request, the
retirement fund administrator will be assisted with the development of an interface
to facilitate bulk reporting on behalf of retirement funds.
Cognisance should, however, be taken that reports rejected electronically, as a
result of certain validations built into the system, must be re-submitted to the
Financial Surveillance Department through an Authorised Dealer.
(i)
African allowance
Institutional investors are allowed to invest an additional five per cent of their total retail
assets by acquiring foreign currency denominated portfolio assets in Africa directly
through foreign currency transfers from South Africa or indirectly by acquiring approved
inward listed investments, excluding inward listed shares, based on foreign reference
assets or issued by foreign entities, listed on the JSE Limited.
A separate registered fund or collective investment scheme in South Africa sanctioned
by the Financial Services Board, is preferred in instances where the institutional investor
wishes to obtain direct African exposure by means of a pooling arrangement, e.g. an
African fund set up specifically by a managing institution. It is, however, not a
requirement that such a direct African exposure should always be undertaken through a
separate fund (registered or unregistered).
Institutional investors may apply to the Financial Surveillance Department through an
Authorised Dealer to acquire indirect African exposure through a foreign registered fund
mandated to invest into Africa. The fund should be mandated to invest at least 75 per
cent of funds under management into Africa. A copy of the mandate/prospectus must
accompany such application.
Applications will also be considered in instances where institutional investors obtain
indirect African exposure through investments in instruments issued by African entities
which are listed on non African exchanges, to raise funds earmarked for use in Africa.
All institutional investors should ensure that their investments in African portfolio assets
are also in compliance with the Financial Services Board’s requirements and regulations.
The transactions executed in terms of the five per cent African allowance where foreign
currency is transferred from South Africa must be reported via the Reporting System.