Collective Investment Schemes

A ‘collective investment’ scheme is where two or more members of the public invest money, or other assets together. They hold an interest in the investment and share the risk and the benefit in proportion to their investment. Common examples are unit trusts, mutual funds, and so forth.

The governing statute is the Collective Investment Schemes Control Act 2002. It falls under the authority of the Minister of Finance, but the executive officer of the Financial Services Board is the Registrar of Collective Investment Schemes and it is he who effectively administers the Act.

A. Managers

  1. You must be authorised to administer collective investment schemes. This means you must be registered with the Registrar as a manager, or you are authorised by such a manager. It is an offence if, otherwise you perform an act amounting to administration.1

  2. If you are not so registered, it is also a criminal offence:
    • to name, or describe your business by any kind of reference to a collective investment scheme, unit trust, mutual fund, etc. (a ‘scheme’).
    • to perform any act which is likely to lead the public to think that your business is, or which amounts to, the administration of a scheme.2
  3. It is a criminal offence for a manager of a scheme (and his employee) to have any personal interest or derive any financial advantage from the acquisition or sale by them of any assets of a portfolio in a scheme.3 4

  4. Managers may only deduct the following from a portfolio as charges or fees, and commit an offence by doing otherwise:
    • brokerage and trustee fees, taxes and stamp duties;
    • auditors fees and bank charges;
    • fees payable to the Registrar of Companies for the creation of authorised share capital, or participatory interests;
    • agreed and disclosed service charges; and
    • listing costs in the case of a property scheme listing on an exchange.5
  5. In the case of a collective investment scheme in securities only a company with certain capital and reserves can be a manager. It is an offence to administer a collective investment scheme in securities if you are not such a registered manager.6

  6. The same applies to the administration of a collective investment scheme in participation bonds.7

  7. When it comes soliciting investments from members of the public in South Africa for foreign schemes, this is only permissible if the Registrar has approved it. It is an offence to do otherwise.8

B. Trustees and custodians

  1. Depending on the structure of the scheme, a manager must appoint either a trustee or a custodian for the scheme. It is an offence for someone to act as a trustee or custodian if he is not registered with the Registrar.9

  2. Companies and certain banking and insurance institutions can act as trustees or custodians (if registered) but they must maintain capital and reserves. An offence is committed if provision is not complied with.10

  3. If the appointment of a trustee to a scheme is terminated, he must lodge a report with the Registrar giving full details about:
    • any likely or actual irregularity; or
    • undesirable practice in the conduct of the affairs of the scheme; and
    • the reasons for the termination of his appointment.

    It is an offence not to comply with these provisions.11

  4. Trustees and custodians have a number of duties. The failure to perform any one duty constitutes a criminal offence.12

C. False and influential information

  1. It is a criminal offence to make any false or misleading statement which is likely to:
    • induce others to purchase or deal in a participatory interest;
    • inflate, or depress, or maintain the price of a participatory interest.13
  2. It is also an offence to disseminate any false or misleading information likely to do the same thing.14

  3. You may not publish or circulate any written comment which may influence the value of any participatory interest, unless it is accompanied by:
    • the name of the person who compiled the comment, or who the editor (of the newspaper or periodical, if applicable) regards as having compiled it; or
    • a disclosure of the source from which the comment was obtained; or
    • a disclosure of the information on which it was based.

    It is a criminal offence to contravene this prohibition.15

D. Auditors

  1. Independent auditors must be appointed by a manager to audit the whole of the business of a scheme it administers.16 That auditor has a number of obligations set out in the Act, and he commits a criminal offence if he fails to perform any of these duties.17

E. General

  1. Any person who fails to comply with any notification, direction or ruling given in terms of the Act commits an offence.18

  2. There are a number of fairly esoteric provisions regarding the sale of participatory interests and where there is insufficient liquidity in a portfolio. The Act makes it an offence to contravene their prohibitions.19

  1. Section 115(b) read with section 5(1). 

  2. Section 6 read with section 115. 

  3. This does not apply in the case of differential pricing or underwriting of participatory interests. 

  4. Section 92 read with section 115. 

  5. Section 93 read with section 115. 

  6. Section 41. 

  7. Section 53. 

  8. Section 65. 

  9. Section 68(1) read with section 115. 

  10. Section 69(4) read with section 69(1) and (2). 

  11. Section 68(3) read with section 115. 

  12. Section 70(6). 

  13. Section 106 read with section 115. 

  14. Section 107 read with section 115. 

  15. Section 110 read with section 115. 

  16. See section 73(1) of the Act. 

  17. Section 74(6) and section 75(3). 

  18. Section 115(c). 

  19. Section 94-96 read with section 115.