Download CIS Frequently Asked Questions

ADVERTISING, MARKETING AND INFORMATION DISCLOSURE
REQUIREMENTS FOR COLLECTIVE INVESTMENT SCHEMES – FREQUENTLY
ASKED QUESTIONS
PART I: DEFINITIONS, OBJECTIVES AND APPLICATION
1.
What is the objective of advertising, marketing and information disclosure
regulation?
The objective of advertising, marketing and information disclosure regulation is to
provide a legal framework within which managers of collective investment schemes
must advertise and market their products in a way that protects investors from
misleading or fraudulent conduct.
2.
Who is expected to comply with the rules for advertising, marketing and
information disclosure?
Any manager of a registered and approved CIS Scheme or portfolio, including foreign
portfolios approved in terms of section 65 and anyone that acts as their agent, for
example its marketing agents.
3.
What is plain and understandable language?
Plain and understandable language is language that is concise, clear and not
misleading to the investor.
4.
Who is responsible for providing investors with product information, CIS
manager or intermediary?
The regulation is aimed at improving disclosure and understanding of CIS products
by any potential investor. The regulation gives responsibility to the CIS manager to
make sure that disclosures are available to its potential investor and the intermediary
would similarly be responsible for obtaining and providing the information.
5.
How will the FSB handle Tweets/social media?
The regulation currently does not regulate any specific medium for the purpose of
applying these rules, however it is expected that such medium used should not be in
contravention of these rules.
1
6.
In terms of Sections 5(3), 10(1) 12 (1) and (2), 16 (3) (v), all refer to “the most
expensive class offered by the manager for investment by members of the
public, other than financial institutions”. What is referred as “financial
institutions”?
One needs to distinguish between “offered to” and “offered through”. In other words it
refers to a person ending up with the investment account not being a financial
institution, even if the intermediary service is provided by a financial institution.
PART II: GENERAL RULES FOR MARKETING & ADVERTISING
7.
What are the requirements in terms of marketing rules?
A manager may not advertise or market any collective investment scheme or portfolio
in a manner that is likely to create a misleading or false statement. The
advertisement should not be fraudulent or deceptive in any manner.
8.
What are the advertising platforms that a manager can use?
The advertising platforms that a manager may use can be direct or indirect visual or
oral communication transmitted by any medium. The manager may use brochures,
prospectuses and websites as its advertising platforms.
9.
Can a manager publish marketing and advertising information without lodging
material with the registrar?
No. A manager must lodge with the registrar copies of all advertising and marketing
material to be published by the manager prior to the publication or use of the
material.
10.
Section 5(3) relates to requirements of an advertisement, does this also relate to
marketing material and MDD? Paragraph 5(3) pertains specifically to
advertisements.
If the MDD or marketing material is being used as an advertisement (which is
unusual due to its size), then it would need to comply with the requirements for
advertising as well.
11.
Section 5(3) (h) states that an advertisement must disclose “special areas of
risk” relating to the investment? Please provide guidance on the term “special”?
It is intended to refer to the risks other than the normal market risks. Investors
generally understand the market risks associated with an investment, but they are
not aware of risks associated with, for example investing in a third world country, or
an illiquid currency, etc.
2
PART III: MANDATORY DISCLOSURES
12.
In which material should mandatory disclosures be made?
Mandatory disclosures must be included in all marketing material about that specific
portfolio as well as on the MDD. The statements must be clearly shown for investors
to read and understand.
13.
How should the risk and disclosure requirements be made for portfolios that
include foreign securities?
The disclosure of any material risk is expected prior to effecting the transaction. The
method or medium is not prescribed and it should be considered as to whether the
manager can prove that that disclosure took place when challenged thereon.
PART IV: PERFORMANCE DISCLOSURES
14.
Is forecasting and commentary allowed?
Forecasts or commentary is only allowed about future performance of asset classes
or markets in general- i.e. performance projections are not allowed; however it should
be based on disclosed reasonable assumptions. It must also be accompanied with a
statement that the included commentary is not guaranteed to occur.
15.
Is comparative advertising allowed?
A manager may only make comparisons between its collective investment scheme or
portfolio and another collective investment scheme or portfolio if the collective
investment schemes or portfolios have sufficiently similar features and Commonality.
The scheme or portfolio being compared to may not be mentioned by name.
The information used when making comparison based on portfolio returns must be
accurate and up to date.
16.
What are the disclosure requirements for pricing?
A manager must, in respect of each of its portfolios publish daily prices of the most
expensive class offered by the manager for investment by members of the public
other than financial institutions including the latest total expenses ratio applicable to
that portfolio on its website if any, and in at least one national newspaper.
3
17.
In terms of Section 7 (4)(b) a CIS Manager may not publish an advertisement
which “includes returns over terms shorter three year’s other than in case of a
money market portfolios. What if the portfolio has not been in existence for three
years?
A manager may not advertise a performance of less than three years (except for
Money Market Funds). However, in all other forms of disclosures and marketing it
can show a return for 1 year, but not for shorter than 1 year.
PART V: INFORMATION DISCLOSURE
18.
What is the expectation of the general requirements for information disclosure?
Disclosure of any information in respect of a collective investment scheme should be
fair, consistent, transparent and accurate. It should achieve the fair treatment of
investors.
19.
Can UCITS KIID be used for purposes of meeting requirements of the MDD?
Yes, a UCITS KIID can be used provided that it includes a supplement for the
requirements specific to the South African product. An addendum would need to be
done and attached to the KIID where the information required falls short of the
requirements of Board Notice 92.
20.
When should communication of the MDD to investors be made?
The MDD should be communicated to existing investors when the investor makes an
additional investment and/or when the investor switches between investments.
All prospective investors must also receive an MDD. Investors always have the right
to be provided with MDD on request.
The managers generally place their Fund Fact Sheets on their websites and it is
expected that the MDD, whether in the form of a Fund Fact Sheet or otherwise,
would be placed on the manager’s website.
21.
When reporting on investment returns to investors, are figures expected to be in
monetary value or percentage form?
It is expected that the reporting be done in a clear manner and easy to understand
and as such monetary value changes should be used while percentage figures can
be quoted alongside the monetary values.
4
22.
What is the medium of communication recommended regarding disclosure and
reports to investors?
Investors will communicate their preferred method of communication to the manager,
with direct mailing being the default.
23.
Where investors make investment instructions over the internet, how does a
manager ensure investors read and understand material?
When making investment changes over the internet, investors must not be able to
proceed without acknowledging having read and understood those disclosures.
24.
Is an MDD a replacement of a fund fact sheet?
MDD is not necessarily a replacement and the manager can decide to have one or
two documents, bearing in mind that the FSB does not regulate the term “fund fact
sheet”. However should a CIS manager choose to continue using a fund fact sheet
as an MDD, care must be taken to ensure it complies with the rules.
25.
Is the requirement to disclose “details, fees payable to and signature of the
financial services provider” referring to intermediaries?
This is in reference to the intermediary and not the asset manager. The CIS manager
and the investor must know who the intermediary of record is.
26.
With reference to the section 15 reporting, is the reporting done on various
separate documents?
The different sub-paragraphs indicate the different documents required.
27.
When reporting as required in terms of Section 15(5), is the requirement for
reporting on changes in the asset allocation or detailed holding report?
As is traditionally disclosed, the intention is to focus on anything that would affect the
investor’s decision to be invested in the portfolio; as a minimum the asset allocation
and top ten holdings.
PART VI: GENERAL PROVISIONS
28.
Will there be a transitional period for managers to comply with the new
advertising, marketing and disclosure requirements?
Yes, the notice was published on 8 August 2014 and comes into effect on 1 March
2015; all managers will be required to comply with it by then.
5
29.
How is file and use going to work?
The manager must lodge all material prior to publication and material may be used
once the manager receives an acknowledgement of receipt from the registrar. The
acknowledgment of receipt will be sent to the manager as soon as the necessary
information and payment have been lodged with the registrar.
30.
Does a manager need approval from the registrar to use the material?
A manager does not need approval from the registrar prior to using/publishing the
material and can use the material immediately on receipt of the acknowledgement of
receipt from the FSB.
An acknowledgement of receipt does not constitute approval of the material and the
registrar has the right to object to material at any time after it has been lodged.
31.
How long does the registrar have to object to material lodged?
The registrar has 30 days within which to object material lodged. In this instance the
manager will not be able to use the material any further until the manager has
satisfactorily addressed the registrar’s objection/s.
If it appears, at any time after the 30 day period that any material lodged is not
appropriate the registrar may raise his or her concerns with the manager who will be
required to address the registrar’s concerns. In this case if the manager is unable to
address the Registrar’s concerns satisfactorily, then the registrar may require the
manager to stop using the offending material until it has been modified to the
registrar’s satisfaction.
32.
How much is the fee a manager can expect to pay when lodging material?
A fee determined by the registrar must be paid and proof of payment should
accompany the lodged material. The fees payable will vary depending on the type of
material lodged and depending whether the material pertains to advertising,
marketing or information disclosure. The exact amount applicable to each type of
material will be provided as soon as possible.
33.
What is the medium used to lodge material with the registrar?
All material will be lodged online on the FSB website submission portal. The portal
will be accessible to pre-registered individuals responsible for the submissions on
behalf of the manager.
Managers are expected to provide details to the registrar of individuals to be preregistered and granted access.
6
34.
When do managers have to start lodging material with the registrar and what
are the submission periods?
All advertising, marketing and information disclosure material will be lodged with the
registrar as from 1st of March 2015. Generally any new material must be lodged with
the registrar prior to its use in terms of the file and use system.
Managers are expected to lodge application forms at least once annually within 30
days of the commencement of the manager’s new financial year and MDD must be
submitted quarterly. Any updated versions of the MDD and application forms must be
lodged with the registrar prior to any publication.
Marketing material and advertising information must be lodged with the registrar any
time prior to usage.
7