The investment providers industry which comprises local and foreign managers of collective investment schemes and investment managers design products that are primarily aimed at generating returns and creating value-for-money for investors. The commitment to create value for investors is dependent on probable future market returns or performance of the investment over the medium to long term investment period.
The asset management function includes primary activities such as risk management and fund administration activities. Outsourcing arrangements are often involved in the administration of an investment mandate, and these can include arrangements with respect to marketing, sales, or post-sales customer experience aspects.
It remains imperative that risks identified through what is acknowledged as “conduct risk framework areas” throughout the lifecycle of an investment product are effectively monitored and managed.
Essentially the role of conduct risk management in the asset and investment management function ought to be duly considered in order to drive better and fair outcomes for consumers across the value chain structures and the product life cycle.
With this as a backdrop, the FSCA recently hosted an engagement with the Investment Providers industry aimed at sharing key strategic and regulatory developments and to gain valuable feedback from the industry about their experiences in the environment.
Of particular interest during the session were the CIS regulatory amendments planned by the FSCA as per the Regulation Plan. The FSCA shared that it is:
- Reworking of Board Notice 90 of 2014 as a standard for determining securities and assets that may be included in a CIS in Securities and Retail Hedge Funds, and the limits, conditions subject to and manner of their inclusion. The joint workgroup (with the PA) is progressing well. Because it is an entire updating re-write, also to include all relevant principles and guidance from the Financial Stability Board (FSB) and International Organisation for Securities Commissions (IOSCO), especially policy tools on liquidity management and financial stability concerns, it will take some time. It is a voluminous piece of work that requires intense attention. The agreed time for delivery to National Treasury to be put through the parliamentary process is the end of 2024. It will also include revised requirements for the suspension and gating of redemptions currently contained in Board Notice 573 of 2003.
- Rewriting Board Notice 257 of 2013 as a standard to determine conditions in terms of which Foreign Collective Investment Schemes may solicit investments in South Africa. This instrument is currently being finalised in draft and public consultation is expected by the end of the year. It aims to deal with the difficulties that the local and foreign industry have been experiencing in terms of uncertainties regarding acceptable investment approaches by foreign funds and their categorisation.
- Working on accounting Standard for CIS schemes. Although this draft standard cannot be finalised and published as a standard until the Conduct of Financial institutions, the proposed content can in the interim be used to consult on with bodies such as SAICA and IRBA etc. This will be the next step within the next month, as the necessary draft documents to enable this have been finalised. The industry will then be consulted depending on the outcomes of the consultation of the professional and regulatory bodies.
- Interim amendments to BN90 to finalise permitted investment in actively managed exchange traded funds and permit investment in any single offshore fund to a maximum limit of 45 percent. It is intended to proceed with its publication before the end of the year.
- Working on a Conduct Standard ensuring enhanced regulation for CIS’: This conduct standard will predominantly be focused on addressing findings emanating from South Africa’s Financial Sector Assessment Program (FSAP) that are not being addressed in other regulatory instrument projects. Technical work and drafting of the framework have commenced, and consultation is expected to take place will take place in early 2024.
- Regulatory framework for Alternative investment funds activities: The purpose of this project is to develop a fit for purpose regulatory framework for the regulation of alternative investment fund activities (in anticipation of the COFI Bill). Technical work informing this project has started, although it is in its very early design stages. This stage will necessitate a number of discussions with relevant stakeholders and knowledge holders. The industry is also welcome to provide inputs and thoughts. Once the design of outcomes to be considered has been finalised, the FSCA will go out on tender for assistance in the development of the framework.
- A harmonised standard on custody, custodians and nominated custodians: Although the work has progressed far, the outcomes on the submission of the CoFI bill are awaited to action any necessary changes, where after it will be processed for consultation.
- The Board Notice 92 revision, i.e. Conduct Standard relating to Advertising and Marketing Requirements for CIS Managers is being kept in abeyance to be part of the transition legislation on implementation of the CoFI. It is intended first to harmonise requirements across industries into a single standard, where after the specific CIS requirements will be finalised and again consulted.
The session proved to be quite enlightening for attendees and it is envisaged that many more of these engagements will be held in future. To catch the full session, please click on the link below:
https://youtu.be/yADyN3EnWrA |
