Download FSLGAB comments Nov 2012 - Financial Services Board

PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
Definition of operator
WORDING / PROPOSED
WORDING
COMMENT
Thank you for taking into account our previous
comments in narrowing the definition of
“Operator” in the Revised Draft Notice.
However, we do not consider the revised
definition achieves the intended purpose of
such change. In particular, we note that the
revised definition catches “any person or entity
that is authorised by a regulator to administer a
scheme”. In Europe, there is a significant
distinction between entities which are tasked
with the administration of a scheme (e.g. a
custodian or fund administrator) and those that
are authorised to “operate” a scheme.
It is beyond the scope of this response to
explain, in detail, the extremely complex and
protracted jurisprudence surrounding the
definition of “operator” for English legal
purposes. (see, by way of exemplar, the
Financial Markets Law Committee’s Paper:
“Issue 86 – “Operating” a Collective Investment
Scheme”, which can be found online at
www.fmlc.org/Documents/Issue86July08.pdf).
However, we consider it worth drawing the
issue to the FSB’s attention to ensure that the
new regime is workable in practice and
achieves its policy objective of permitting South
African investors to invest in foreign schemes.
For example, pursuant to the EU Undertakings
for Collective Investment in Transferrable
Page 1 of 31
FSB RESPONSE
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
Securities Directive (“UCITS”), the “operator” of
a UCITS compliant scheme would be the UCITS
Management Company. A UCITS Management
Company is authorised in its jurisdiction by the
relevant regulatory authority to engage in the
management of UCITS schemes and (where
relevant) other collective investment schemes
(which will typically be formed as unit trusts,
contractual funds or investment companies).
Accordingly, in the United Kingdom, the
Financial Conduct Authority (FCA) regulates
UCITS
Management
Companies
which
(according to the Glossary to the FCA’s
Handbook of Rules and Guidance) “manage the
property of the [scheme]”.
In the context of the recently implemented EU
Alternative Investment Fund Managers
Directive (commonly referred to as “AIFMD”),
which regulates alternative investment funds
(“AIFs”) that do not fall within the UCITS
regime, the activity of “managing” or
“operating” the relevant scheme connotes the
performance of (i) portfolio management; and
(ii) risk management activities. In this case, the
“operator” is the Alternative Investment Fund
Manager (the “AIFM”).
By contrast, fund administration connotes
certain administrative activities that are carried
out in support of the actual process of
Page 2 of 31
FSB RESPONSE
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
operating and managing a scheme. Such
activities may include the following and are
typically outsourced by the fund manager to
third party fund administrator and/or
custodian:




fund accounting;
calculation of the scheme’s net asset value;
preparation of semi-annual and annual
reports to shareholders; and
maintenance and filing of the fund's
financial books and records as the fund
accountant, including reconcilement of
holdings with custody and broker records.
For the reasons explained above, we would
recommend amending the definition of
“Operator” in the Revised Draft Notice as
follows:
““operator” means any person or entity that is
authorised by a regulator to administeroperate
and manage a scheme;”
Definitions
As a general rule and by way of observation,
the Notice should not itself provide definitions
which the Act so provides as this could lead to a
conflict of definitions.
An example is the introduction of the term
“operator.” If it is the intention for the term
Page 3 of 31
The definition of administration in CISCA
includes all functions performed in
respect of a collective investment
scheme and accordingly includes
operate and manage. It is for this reason
that the definition of operator has been
aligned with the definition of
administration.
Administration is defined and administer
has a corresponding meaning,
accordingly will not be amended as
proposed.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
1
Definition:
“solicit”
WORDING / PROPOSED
WORDING
“solicit” means any act to
promote investment by members
of the public in a collective
investment scheme;
COMMENT
“operator” to be used in its widest sense to
include the functions contemplated in the term
“administration” in the Act, then that term or
exact word should specifically be used in the
definition.
‘“operator” means any person or entity that is
authorised by a regulator to undertake the
administration of a scheme;’
“Solicit” is defined in CISCA and will have the
same meaning in the Notice. From a legal
perspective it is not possible to alter the
meaning in the Notice. Historically there has
been confusion as to the meaning of
solicitation. ASISA members suggest that the
Registrar review and update the Joint Circular
from the Registrars of Collective Investment
Schemes, Stock Exchanges and Financial
Markets of 17 March 2003.
FSB RESPONSE
While we agree that there ought to be
consistency, in some instance the
context requires use of the words
“market and promote”. Agree to use
solicit where possible.
The Draft Notice refers to “market”, “promote”
and “sell”. These references should be
replaced with references to “solicit” or
“solicitation” to ensure consistency with the
terminology in section 65 of CISCA.
1
Definition:
“representative office”
“representative office” means a
company incorporated in terms
of the Companies Act,
representing a scheme and which
undertakes to comply with the
applicable provisions of the Act
ASISA members suggest that the definition of
“representative office” should be aligned with
the definition of “representative agreement”.
“Representative agreement” is defined as an
agreement between the operator of a scheme
and any manager registered under the Act, in
Page 4 of 31
Do not agree, we have provided what
the representative office is required to
do. The undertakings are made in the
agreement
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
Paragraph 1- definition
of “representative
office”
WORDING / PROPOSED
WORDING
COMMENT
and the conditions set out in this
Schedule;
terms of which agreement the operator of the
scheme undertakes to comply with the
applicable provisions of the Act and the
conditions set out in this Schedule. From this
definition, it is inferred that the SA manager
has an obligation to monitor compliance of the
operator with the applicable provisions of the
Act and the conditions in the proposed Notice.
ASISA members are of the opinion that a similar
obligation should be placed on the
representative office.
“Representative Office” means a
company incorporated or
registered in terms of the
Companies Act, representing a
scheme;
Please consider broadening the definition of
Representative Office to include external
companies which are registered in South Africa
in terms of Section 23 of the Companies Act,
2008 rather than incorporated in terms of the
Companies Act, 2008.
Page 5 of 31
FSB RESPONSE
Agree, will change to reflect that must
be incorporated or registered in terms
of the Companies Act, 2008. Note that
this includes an external company
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
2(1)
Conditions for approval
WORDING / PROPOSED
WORDING
An operator of a scheme applying
for approval in terms of section
65 of the Act, must be authorised
and supervised by a regulator
which has a regulatory
environment of similar standing
COMMENT
FSB RESPONSE
A representative office cannot be a company
per se as it is not a corporate or juristic entity, it
is as the name implies, a representative office,
nothing more. Section 23 of the Companies Act
provides that an external company (defined as
“a foreign company that is carrying on business,
or non-profit activities, as the case may be,
within the Republic”) must register with the
Commission within 20 business days after it
first begins to conduct business in the Republic.
As there is no doubt that an operator will be
conducting business in the Republic on behalf
of the scheme, an operator will be required to
register with the Commission. As such, the
term “representative office” is misplaced and
should read “prescribed office” as the external
company is required, in terms of Section
23(3)(a) of the Companies Act to maintain an
office in the Republic.
With respect to the definition of “regulator” it
must be made clearer that it is the primary
regulator (of domicile) of the foreign collective
investment scheme which is the subject of the
application, not just referring to foreign
collective investment schemes in general.
At the workshop on the Draft Notice on 26
September 2013, the FSB indicated that, based
on legal advice, a reference to IOSCO members
or a definitive list of acceptable foreign
regulatory environments is not desirable. It
was understood that the Registrar will measure
No, disagree. A representative office is
required to be a company in terms of
the Companies Act, 2008. This is not to
align with the companies act but to
define terms for purposes of this Notice.
Page 6 of 31
Disagree, the domicile may be different
from the primary regulator. The
definition is sufficient
Comments are noted and as indicated at
the workshop this guidance will be
provided by way of a guidance note to
be issued by the Registrar.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
as the regulatory environment of
the RSA.
foreign regulatory environments against the
IOSCO Objectives and Principles of Securities
Regulation and that guidance in this respect is
to be issued. For the sake of legal certainty,
ASISA members continue to prefer a more
definite indication than the broad indication
included in the proposed Condition 2(1).
FSB RESPONSE
ASISA members will appreciate an opportunity
to provide comment on draft guidelines in this
respect and suggest that trustees be offered
the same opportunity. From a practical
perspective, it is of utmost importance that the
application of this proposed condition be
understood and implemented universally.
2(1) Conditions for
approval
We note that the first condition for approval in
Paragraph 2(1) of the Revised Draft Notice
requires the relevant operator to “be
authorised and supervised by a regulator which
has a regulatory environment of a similar
standing as the regulatory environment of the
Republic.” However, the Revised Draft Notice
does not elaborate on how the FSB will
designate such regulatory environments or
what standards it will apply to make such a
judgment. Unless such condition is clarified
further, it gives rise to significant uncertainty in
terms of qualification criteria for the regime.
Does the FSB intend to publish a list of such
equivalent regulatory environments?
Page 7 of 31
This will be clarified in the guidance
note. We will not publish a list but the
applicable criteria will be determined in
the guidance note.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
The Act refers, in Section 65(1), to the Registrar
approving an application made by the manager
or operator of a foreign collective investment
scheme, implying that the application is made
for the approval of the scheme and not the
operator or manager, as the case may be,
soliciting business in the Republic. This is
confirmed in Section 65(2) where it reflects
back on the “scheme approved.”
Section 2(1) of the Conditions should be
changed to correctly reflect the Act, namely
that the scheme must “be authorised and
supervised by a regulator which has a
regulatory environment of similar standing as
the regulatory environment of the Republic.”
“A scheme applying for approval in terms of
section 65 of the Act, must be authorised and
supervised by a regulator which has a
regulatory environment of similar standing as
the regulatory environment of the Republic.”
Whilst this terminology is politically correct
from an international relations perspective, it,
however, creates uncertainty as to which
regulators the Registrar deems acceptable and
the basis upon which such decision is made.
The Registrar will be required to give more
certainty in this regard.
Section 2(b) of the Conditions is prescriptive
with the use of the word “must” and, as such,
Page 8 of 31
We are not approving the operator but
the scheme however in order to approve
scheme we need to satisfy ourselves
that the operator offering the scheme is
adequately supervised. The provision
has been amended to correctly reflect
this.
Addressed, see response below.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
2(2)
Conditions for approval
WORDING / PROPOSED
WORDING
The scheme which the operator
intends to[ market] solicit in the
Republic must(a) be available for investment
in its domicile of
registration; and
(b) be[ marketed] solicited in
the Republic[ under the
same requirements and
conditions and] to the same
type of investors under the
same or substantially
similar requirements and
conditions relating to the
type of investor as in its
domicile of registration.
COMMENT
does not permit the Registrar, to the extent he
or she requires such, to add any additional
requirements as the scheme “must be
marketed in the Republic under the same
requirements and conditions and to the same
type of investors as in its domicile of
registration.”
1.
The reference to “market” and
“marketed” should be replaced with
references to “solicit” and “solicited” for
the sake of consistency.
2.
ASISA members suggest that Condition
2(2)(b) be amended as indicated for the
sake of clarity. It is understood that the
Registrar wishes to ensure that the
foreign scheme is solicited in SA to the
same type of investor under the same
conditions relating to the type of investor
as in its domicile of registration. In other
words, if a scheme is available to retail
investors (under requirements and
conditions) in its home jurisdiction, it
must be solicited/marketed to retail
investors in SA (under the same/similar
requirements applicable to retail
investors as in its home jurisdiction). It is
further suggested that a reference to
“substantially similar” be included to
provide for instances where the
requirements and conditions relating to
Page 9 of 31
FSB RESPONSE
Noted, will be amended accordingly.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
the type of investor is not exactly the
same. This is also consistent with the
reference to “similar” contained in the
proposed Condition 2(1).
3.
One ASISA member holds the opinion that
the proposed Condition 2(2)(b) is
unnecessarily restrictive. The proposed
wording potentially prejudices all
managers that promote one or more
Class B Schemes domiciled in the Channel
Islands (Jersey and Guernsey) since Class
B schemes cannot automatically be made
available to members of the public in the
Channel Islands or the UK in the same
way the Class A schemes can (despite
many of them containing all the
characteristics of Class A schemes). It is
believed that all, or the large majority, of
Channel Islands funds registered under
section 65 are Class B schemes. The
implications for promoters of these
schemes of the proposed change is severe
if the FSB adopts the stance that the only
Channel Islands funds that qualify for
registration under s65 are Class A funds
(of which there are almost none). It is
further believed that the Prospectus of
each foreign scheme should be evaluated
for approval on its merits and, if it meets
the minimum criteria for promotion in
Page 10 of 31
Noted, however in terms of these
requirements we require the
investments to be offered in both SA
and where it is domiciled.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
South Africa, be approved,
notwithstanding its intended target
market in its home jurisdiction (in this
regard we note that many foreign
markets segregate the investing public on
grounds such as minimum investment
size or deemed sophistication, whereas
there are no such provisions in South
Africa).
Paragraph 2(2)
(
Paragraph 2(3)
2(3) The Operator of a scheme
applying for approval must:
(a) enter into a representative
agreement; or
(b) maintain a representative
office.
2(4)(a)
The operator of a scheme
We suggest that this requirement be deleted
until a study is completed to determine which
of the schemes currently approved in terms of
section 65 of the Collective Investment
Schemes Control Act, 2002 (“Act”) would be
disqualified by this requirement.
Alternatively, we suggest that this requirement
should be amended to provide the ability for an
applicant to motivate to the registrar why the
scheme should be approved notwithstanding
that it does not meet this requirement.
The proposed amendment uses the wording
contained in the existing conditions.
In our view the use of the word “establish” is
problematic as it suggests that an existing
affiliate of the operator cannot fulfil this role
and that a new company need be incorporated
or registered.
At the workshop on the Draft Notice on 26
Page 11 of 31
Do not agree.
Noted, however we do not agree with
this interpretation. An existing office
would not be excluded as it would be
required to be established as a
representative office in terms of CISCA.
As it currently exists it would not be a
representative office, it would just be an
existing affiliate.
Will amend accordingly.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
Conditions for approval
applying for approval must satisfy
the registrar that –
(a) the scheme is sufficiently
liquid to meet investor
redemptions;
September 2013, the Registrar indicated that
the sufficient liquidity is intended to relate to
investor redemptions.
Paragraph 2(4)(a)
2(4)(b)
Conditions for approval
2(4)(b)
The operator of a scheme
applying for approval must satisfy
the registrar that –
(b) the scheme does
redemptions at
appropriately regular
intervals;
FSB RESPONSE
We suggest that this requirement be clarified.
It is not clear what is meant by the reference to
liquidity – is this liquidity for redemption
requests, for meeting payment obligations in
respect of expenses in respect of the scheme,
for meeting obligations to derivative
counterparties or all of the above?
It is suggested that a reference to
“appropriately” be included to qualify regular
intervals. The regularity of redemptions will
depend on the type of scheme.
Liquidity refers to investor redemptions,
will be amended accordingly. Please see
response above.
Condition 2(4)(b) requires to operator of the
relevant scheme to satisfy the registrar that the
scheme does redemptions at regular intervals.
The Registrar of Collective Investment
Schemes in terms of CISCA. The registrar
as defined in CISCA. All references refer
to the definitions in CISCA.
Firstly, it is not clear to whom the term
“registrar” refers in this context. We assume
that it is referring to the FSB, but this should be
clarified in the Revised Draft Notice.
Secondly, there is not clarity or guidance in
Page 12 of 31
This does not make any difference, as
whenever we consider regular intervals
we have to consider what is appropriate
for the type of scheme.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
Paragraph 2(4)(b)
2(4)(c)
Conditions for approval
The operator of a scheme
applying for approval must satisfy
the registrar that –
(c) the scheme does not permit
investment in an
instrument that[ allows]
compels the acceptance of
physical delivery of a
commodity.
COMMENT
respect of what “regular” means for the
purposes of determining whether or not
redemptions are accommodated on a regular
basis. Please clarify.
We suggest that the current paragraph 2(4)(b)
be deleted.
This paragraph requires the registrar to
exercise a judgment without stating a clear
requirement.
The alternative wording is proposed for the
sake of clarity. In some cases, an instrument
may allow for physical delivery but such
delivery is never exercised. ASISA members
wish to point out that this requirement may not
necessarily be specifically included in a
prospectus. It should however be possible to
confirm the requirement by a written
undertaking or similar verification.
Section 2(4) of the Conditions undoes the initial
purpose of the Conditions, namely to bring the
Act and its application in line with international
norms and standards. In other words, to the
extent Registrar accepts the foreign regulator,
then the application should be one of
formality. The introduction of these provisions,
especially Section 2(4)(d), will perpetuate the
existing thinking, interpretation and application
of the Act by the officials of the Office of the
Registrar, as they introduce an element of
subjectivity and discretion in the hands and
Page 13 of 31
FSB RESPONSE
We do not agree, regular is a clear
requirement and it is dependent on the
type of scheme.
Agreed.
Noted, however this requirement is
fundamental and consistent with the
imperative of investor protection.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
Paragraph 2(5)(a)
WORDING / PROPOSED
WORDING
COMMENT
minds of delegated authorities. If the Registrar
accepts the standing of the foreign regulator,
then he or she should too accepts that such
foreign regulator is competent and sufficiently
experienced and skilled to have applied its
mind when approving the foreign collective
investment scheme and that the laws,
regulations and directives of the foreign
jurisdiction is of similar standing to that of the
Republic. Put another way, these requirements
are superfluous and will become known as the
“gatekeeping” section and result in many a
foreign collective investment scheme not being
approved.
We note that the current paragraph 2(a) is
permissive and entitles the registrar to require
confirmation from the foreign regulator that
the scheme is in good standing.
In our experience, with regard to applications
made to the FAIS department of the FSB on
behalf of foreign applicants, a request
addressed by the FSB to a foreign regulator for
a letter of good standing is sometimes leads to
significant delay. If a foreign regulator does not
timeously respond to the FSB’s requests it can
delay the application, causing hardship to the
applicant.
As a practical solution, please consider
whether, in instances where the registrar
wishes to request letters of good standing, a
request to a foreign regulator could be sent at
Page 14 of 31
FSB RESPONSE
Noted, this is an important requirement.
We cannot approve subject to receipt of
this letter. We will permit the operator
to assist in obtaining the letter from the
home regulator more speedily.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
the start of the application process and in
instances where the foreign regulator has not
timeously responded, the FSB could consider
granting approval subject to the condition that
the approval could be revoked if a negative
response is received from the foreign regulator.
Section 2(5) of the Conditions, whilst practically
challenging, have introduced an out for the
Registrar if further investigation is called for.
Application for
approval – legal and
operational structure
Ad section 3
Application for
approval of a scheme
An application made pursuant to the proposed
new regime must include “a description of the
legal and operational structure of the scheme”.
There is no further guidance on this
requirement in the Revised Draft Notice.
Does the FSB anticipate that the relevant
foreign scheme’s existing documents would
suffice for these purposes or does it anticipate
something new/bespoke needing to be drafted
for the purposes of such application? For
example, the AIFMD and UCITS prescribe that
certain documents, in a prescribed form, must
be produced. Such documents may include a
prospectus, constitutive document (e.g. trust
deed) and subscription form.
As a general principle, the inclusion of the
information and/or documentation required in
Section 3 of the Conditions is necessary. The
only cause of concern, based on experience, is
sub-sections (d) and (e) given that most foreign
Page 15 of 31
FSB RESPONSE
Noted, unfortunately for proper
supervision and to ensure the protection
of investors, this has to be a
requirement.
The existing documents will suffice we
do not require any new documents.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
Paragraph 3(c)
3(j)(iii)
Application for
approval of a scheme
WORDING / PROPOSED
WORDING
3(c) The full name and address of
the regulator to which the
operator is subject in the
jurisdiction in which the scheme
is approved; f
An application for approval in
terms of section 65 of the Act
must be in writing and, to the
extent applicable, include(j) written confirmation from
the applicable regulator
verifying that the scheme –
(iii) is by applicable law
permitted for
investment in the
respective jurisdiction
COMMENT
FSB RESPONSE
collective investment schemes do not have the
same or similar structures as applied or
required in and for the Republic. The cause for
concern is that the officials in the Office of the
Registrar continue to interpret and apply
these two sub-sections, as they have done
under the Existing Conditions, namely
requiring total independence of the custodial
and trustee functions or that there be
separate trustees. In most foreign schemes
registered in Luxembourg there is a Board of
Directors which fulfils the role of the trustees.
This issue needs to be clearly addressed
otherwise the Conditions will not have
achieved anything.
Please note that term “jurisdiction” is more
appropriate as the operator’s domicile may be
different from the domicile where the scheme
is approved.
Noted, we are aware of this. The
wording is used broadly, we require
details of the person who provides the
fiduciary function, and details of the
custodian i.e. the entity that is
responsible for safekeeping of assets.
ASISA members suggest that the paragraph be
rephrased in respect of investment outside a
scheme’s domicile of registration. In the event
that foreign legislation is not specific in respect
of permission to solicit investments outside its
domicile of registration, it may be cumbersome
to obtain such confirmation from a foreign
regulator. It is believed that a statement of
whether or not the applicable foreign
legislation prohibits solicitation in other
jurisdictions is more appropriate. It will also
Noted, wording has been amended.
Page 16 of 31
This provision relates to the operator
and then 3(j) refers to the scheme and
we require confirmation from the
regulator regarding the scheme.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
and not prohibited
from soliciting
investments outside
its domicile of
registration.
Paragraph 3(j)
3(j)
COMMENT
FSB RESPONSE
assist with interpretation.
We suggest that this requirement be deleted.
The applicant is already required in terms of
the proposed paragraph 3(k) to provide a copy
of the approval or registration of the scheme.
If a foreign regulator has approved or
registered the scheme, then this should, in our
view, satisfy the registrar that the scheme has
been approved and authorised in accordance
with the legislation of the jurisdiction in which
it is registered and is subject to supervision by
the regulator in such jurisdiction.
There is a risk that, as a matter of practice, a
foreign regulator will not issue to the operator
a specific written confirmation as contemplated
in paragraph 3(j).
Section 3(j) of the Conditions is not strictly
necessary if the Office of the Registrar has
copies of the scheme’s documents of approval,
incorporation and prospectus. The section now
burdens the foreign regulator. If the issue or
concern is one of fraud on the part of the
applicant, then it matters not whether the
Registrar has these documents because the
applicant will simply perpetuate the fraud with
these documents. Would it not be more
Page 17 of 31
Disagree, these are two different issues.
We recognise that this may be difficult
to obtain however in such instances the
regulator will request it from the home
regulator.
Do not agree, these are different things.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
practical and advisable if the Registrar
establishes a direct link to each of the other
foreign 9 | P a g e
3(n)
Application for
approval of a scheme
An application for approval in
terms of section 65 of the Act
must be in writing and, to the
extent applicable, include(n) a document listing the
differences and similarities
between the scheme and a
local collective investment
scheme registered under
the Act;
Paragraph 3(n)
3(n) a document highlighting the
material differences between the
portfolio and a portfolio
registered under the Act;
regulators, such that it can call upon them
directly to verify any scheme it considers with
suspicion.
From the workshop on the Draft Notice on 26
September 2013, it is understood that the
Registrar will review the current document to
ensure alignment with the new Conditions. For
the sake of legal certainty and to assist with
consistent application, it is proposed that the
reviewed document be included as an
Annexure to this Notice. The inclusion of a
schedule of differences and similarities as an
Annexure to the Notice will also evidence
regulatory transparency. The Registrar will
continue to be able to amend the Annexure at
any time. This schedule may also be
incorporated in an application form. Please
refer to the comments on 3(o) below.
We suggest that, as the importance of this list is
to illustrate for South African investments the
differences between the foreign scheme and a
South African scheme, it should be as concise
as possible.
To the extent that there are similarities this
need not be specifically drawn to the South
African investor’s attention.
Page 18 of 31
The document is easily available on the
website, there is no argument for
regulatory transparency.
We do not agree.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
3(n) and (o)
Application for
approval – differences
and similarities
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
It is not clear what the difference is between
the documents referred to in sub-sections (n)
and (o). It is also important, given the issues of
concern around the current thinking,
interpretation and application of the Existing
Conditions and the Act, that this not be used as
a tool by the officials of the Office of the
Registrar to introduce an element of discretion
and subjectivity.
According to the Revised Draft Notice, an
application pursuant to the proposed new
regime must also include:
We disagree that there is no difference,
there is a clear difference. One is for the
investor and the other is for the
registrar. There are administrative
remedies should there be a concern
regarding the exercise of discretion.
(i) a document listing the differences and
similarities between the scheme and a
local CIS registered under the CIS
Control Act 2002; and
(ii) a questionnaire relating to the
scheme, completed on a form that
may be obtained from the registrar.
(We make the same assumption in respect of
the identity of the “registrar” for these
purposes as we do in Paragraph B.3. above.)
In relation to B.5.(i) it would be extremely
costly and administratively burdensome to
produce a comparative document setting out
the similarities and differences between the
proposed new foreign CIS regime in the
Republic and UCITS, for example, each time an
Page 19 of 31
There is a document on the website to
assist with this exercise there should
therefore be no cost or administrative
burden.
The questionnaire is also available on
the website
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
issuer seeks to promote a scheme in the
Republic.
Would the FSB consider, for example,
conducting an upfront analysis by engaging
with foreign regulators and/or fund managers
in order to perform its comparative analysis of
regimes’ equivalence with a view to publishing
a list of regimes that are considered equivalent
for these purposes (e.g. UCITS funds, AIFMD
compliant funds, so called “US ’40 Act” funds)
so that such exercise does not need to be
undertaken each time an issuer/promoter
seeks to register/offer a scheme in the
Republic? If not, does the FSB intend to
articulate further what particular issues such an
exercise would be seeking to identify?
3(o)
Application for
approval of a scheme
An application for approval in
terms of section 65 of the Act
must be in writing and, to the
extent applicable, include(o) a questionnaire relating to
the scheme, completed on
a form that may be
obtained from the registrar;
In relation to B.5.(ii), does the FSB intend to
publish the questionnaire pursuant to the
consultation process?
As with the schedule of differences and
similarities, ASISA members suggest that this
questionnaire which is in essence an
application form be included in the Notice as an
Annexure. The matters to be considered for an
application may be incorporated in the
application form. Legal certainty and
regulatory transparency and consistency are of
utmost importance to the industry. At the
workshop on 26 September, the FSB indicated
Page 20 of 31
No, the documents are available on the
website. The list is of an administrative
nature and it therefore doesn’t not
make sense to include that in the notice.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
that the questionnaire is changed as the
Registrar becomes aware of certain matters
requiring more information. It should be borne
in mind that apart from the fact that the
Registrar will be able to amend the application
form at any point in time, the Registrar also has
the authority in terms of Condition 3(s) of the
proposed Conditions to request any further
information as may be required.
3(q)
Application for
approval of a scheme
An application for approval in
terms of section 65 of the Act
must be in writing and, to the
extent applicable, include(q) a copy of any other
document affecting the
rights of[ holders of
participatory interests]
investors in the scheme;
It is suggested that the reference to “holders of
participatory interests” be replaced with a
reference to “investors” to ensure consistency
in the use of terminology.
Page 21 of 31
Agreed, will be amended accordingly.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
4. Representative
office or agreement
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
Thank you for responding to our comments
relating to the capital requirements of the
proposed new regime in Paragraph B to our
previous response. In particular, thank you for
taking into account (and agreeing to) our
proposal that representative offices should be
permitted to perform multiple services, subject
to applicable legal and regulatory requirements
in the Republic.
If an operator enters into a
representative agreement there is a
buffer and the local manager stands in
the place of the foreign operator. This is
the minimum reasonable requirement
considering the CAR requirements of
domestic schemes. We are considering
increasing the amount as it has not been
changed since 2003.
The response in the Q&A, however, does not
address our concerns as to the proportionality
of the capital requirements. We understand
why regulators require financial services firms
to hold capital. However, we do not
understand the FSB’s statement in the Q&A
that “The function of the office is not the
determinant of the value of capital required”.
The domestic office is to take
accountability for the South African
office.
Firstly, if the amount of regulatory capital that
the FSB will expect the representative office to
hold is not determined by the activities it
performs, what does determine the capital
requirement? (As this is not made clear in the
Revised Draft Notice)
Secondly, the raison d'être of regulatory capital
is to act as a buffer to absorb unexpected
losses, to fund ongoing activities of the firm, to
absorb losses that the firm incurs without
causing disruption to consumers or which may
Page 22 of 31
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
increase the likelihood of the firm defaulting on
its liabilities. Regulatory capital should also act
as a buffer to absorb losses if a firm is wound
up, since the first losses will be borne by
investors in regulatory capital or subordinated
creditors rather than by depositors and senior
creditors. Accordingly, the amount of
regulatory capital a firm is required to hold
should directly correlate with the risks assumed
by the firm. This is why we consider it logical
and proportionate for capital requirements to
be directly linked to the activities that the
relevant firm undertakes.
It is for these reasons, and those described in
Paragraph 5 of our previous response, that we
consider it disproportionate and unreasonable
to expect a representative office performing
only a fund marketing role in the Republic, to
hold “no less than ZAR 2 million” in capital.
Though we appreciate that such a figure might
be perfectly reasonable for a representative
office with a more sophisticated regulatory
permission profile (e.g. one that also performs
portfolio management activities).
We would welcome the opportunity to discuss
these issues with you in more detail. In
particular, we would be delighted to share our
extensive experience of operating funds which
comply with the UCITS and AIFMD regimes.
Page 23 of 31
FSB RESPONSE
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
Paragraph 4(1)(a)
Representative office
or agreement 4(1)
4(1)(b)
WORDING / PROPOSED
WORDING
4(1)(a) where the operator
maintains a representative office,
the operator must satisfy the
registrar that such representative
office maintains assets in liquid
form in South Africa in an amount
of no less than R2 million;
COMMENT
Please do let us know when might be a
convenient time to arrange such a call or
meeting.
We would suggest the proposed amendment to
ensure that it is possible for a representative
office to be capitalised by way of a loan rather
than only through a subscription for shares.
Section 4(1) of the Conditions does not make
any sense as to its purpose. Given that a foreign
company must register with the Commission to
do business in the Republic, it will be required
to have a presence here. However, what
doesn’t make any sense is the capital
requirement. All the presence does is to act as
a local post box or point of reference for the
FSB and the consumer, co-ordinating marketing
and sales, nothing more. What is more, if the
idea is that the capital is to be used in the case
of litigation being brought by an investor, then
the capital would either be meaningless or
insignificant if the operator were to be held
responsible or liable. In any event, it is the fund
that the investor would seek redress from, not
the operator. If that is correct, then the capital
requirement is misplaced.
Also, Section 4(1)(b) of the Conditions is
contradictory in that it prescribes that the
capital must be dedicated to the business of
Page 24 of 31
FSB RESPONSE
Paid up share capital is maintained and
is on the balance sheet therefore cannot
agree to proposal. There is no guarantee
that the assets in liquid form will be
maintained.
Representative office is not a post box it
is accountable to the registrar, it is an
accountable institution.
Amended to address the concerns
raised. In South Africa the operator
represents the scheme and therefore
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
the scheme, but must also be invested in assets
that can be liquidated and must be maintained.
This is nonsensical and not achievable. What is
more, the operator cannot, for tax purposes,
use those assets for the scheme and be
permitted the necessary tax relief. Put another
way, the operator, as a separate legal entity, is
not responsible for the scheme or the liabilities
of the scheme, nor can it be expected to use its
assets for the scheme’s business.
becomes liable for the scheme.
Page 25 of 31
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
Paragraph 4 (General
comment:
Representative Office)
Paragraph 4(4)(c)
4(4)(c) the operation of a
representative office is
discontinued or a representative
office ceases to represent the
scheme, the person appointed
for the purposes of section 33(3)
of the Companies Act must notify
the registrar immediately in
writing and the operator must
cease the promotion and selling
of any investment offered by eth
scheme concerned to solicit
investment in the portfolio from
members of the public in the
COMMENT
FSB RESPONSE
Please confirm what the term “represents”
means in relation to a representative office.
Is it the case that the representative office
must act as a liaison between the operator and
South African investors (in which case a FAIS
license would be required) or must the
representative office merely act as a liaison
between the operator and the FSB?
The role of the representative office is not clear
from the conditions and accordingly an
applicant wishing to incorporate a company to
act as its representative office does not have
legal certainty as to the role that such office
will play in the South African regulatory
framework.
Also, the purpose of the R2 million is not clear
and should be clarified.
We suggest that the proposed amendments
provide an applicant in terms of section 65 with
greater clarity.
It represents the scheme in South Africa
in the offering of the scheme’s products.
If the effect of its operations require it
to have a FAIS licence, the registrar of
CIS does not object to this. The main
purpose of the capital requirement is to
secure the presence of the operator and
ensure its commitment to the business.
Page 26 of 31
Noted, will amend.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
5
Heading
WORDING / PROPOSED
WORDING
Republic until such time as a
representative agreement is
concluded or a new
representative office maintained.
Approval and[ classification]
categorisation of a scheme
5(2)
Approval and
classification of a
scheme
The registrar may categorise any
scheme or portfolio for the
purpose of identifying[
legislation] provisions of the Act
applicable to such category of
collective investment scheme.
Paragraph 5(2)
5(2) The registrar may categorise
any scheme or portfolio of a
scheme for purposes of
identifying the legislation
applicable to such category of
scheme or portfolio collective
investment scheme;
COMMENT
FSB RESPONSE
ASISA members propose that the reference to
“classification” be replaced with a reference to
“categorisation” to avoid possible confusion
with an industry classification.
The FSB indicated at the workshop on the Draft
Notice on 26 September 2013 that the
Registrar intends to categorise a scheme
and/or portfolio according to the applicable
provisions of CISCA e.g. property, general or
hedge funds. The amended wording is
proposed to make this clear as the application
could not extend beyond CISCA.
We understand that it is the registrar’s
intention to “categorise” foreign schemes
according to the different types of collective
investment schemes currently permitted in
South African under the Act.
We understand that the intention is that once
the Act is amended in order to include the
regulation of hedge fund portfolios, this will be
a category into which foreign collective
investment schemes may be classified.
To the extent that the proposed conditions
come into effect before the Act is amended in
order to regulate hedge funds in South Africa,
please confirm how an application for a foreign
portfolio which would fall within the FSB’s
Agreed.
Page 27 of 31
Fine.
Noted, will amend.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
5(3)
Approval and
classification of a
scheme
6
Change of scheme
WORDING / PROPOSED
WORDING
The registrar may, at any time,[
reclassify] re-categorise a scheme
or portfolio[ in accordance with
the category of the scheme] and
such scheme or portfolio must
ensure compliance with the
requirements applicable to that
category.
If a scheme[ or the conditions
under which the scheme has
been approved in terms of
section 65 of the Act] changes,
the operator must(a) notify the registrar in
writing within 30 days of
the change; and
(b) if such change relates to the
requirements of this Notice
or the conditions under
which the scheme has been
approved iin terms of
section 65 of the Act[where
required by the ] the
registrar may request the
scheme to[,] apply for
approval of such change
COMMENT
definition of a hedge fund portfolio will be
processed during the interim period between
the date on which the conditions become
effective and the date on which local hedge
funds are regulated in terms of the Act.
The proposed wording will improve the reading
of the condition and provide for a portfolio in
addition to a scheme to be categorised.
The proposed Condition 6(b) can be read to
grant the Registrar unfettered discretion in
respect of applications for approval. It may
also create a perception of the possibility of
inconsistent application. Schemes should be
able to determine with a reasonable level of
certainty, when the scheme will have to apply
for the approval of a change as it may have an
impact on business decisions. It is suggested
that the Registrar may only require a scheme to
apply for approval of a change if such change
relates to the basis on which the scheme was
previously approved.
ASISA members propose the deletion in the
introductory paragraph as the conditions under
which the scheme was approved will not
change unless the Registrar requires a change.
Page 28 of 31
FSB RESPONSE
Fine, agree to use the word categorise
instead of classify. It is not necessary to
specify a portfolio as the definition of
scheme includes a portfolio.
Agree, but will delete the requirement
that the registrar may request a scheme
to apply for approval. Requirement will
be that where conditions under
paragraph 2 or the provisions of
paragraph 4 change, the manager must
apply for approval.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
within three months of the
registrar’s request.
Paragraph 6
COMMENT
The proposed wording will require a scheme to
notify the Registrar of any change and if such
change relates to the requirements of the
Notice or the conditions under which the
scheme has been approved, the Registrar has
the authority to decide whether the scheme
must apply for the approval of such change.
6 If a scheme or the conditions
under which the scheme has
been approved in terms of
section 65 change, the operator:
a)
FSB RESPONSE
Please refer to the response to
comment above.
The rest of this proposed amendment is
not necessary as the regulations do not
suggest a prohibition on continued
solicitation. It goes without saying that
the scheme continues to operate unless
the Registrar determines otherwise.
must notify the registrar
in writing within 30 days
of the change being
effected; and
b) may apply for approval
of such change within 30
days of the change being
effect or if required by
the registrar, the
operator must apply for
approval of such change
within three months of
the registrar’s request,
provided that the
operator may continue
to solicit investment in
such scheme
Page 29 of 31
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
Section 6 of the Conditions could become
problematic if the foreign collective scheme
was to have to also apply for approval to make
changes to the scheme where such changes are
made as a result of regulatory changes of the
foreign regulator. In essence, Section 6(b)
undermines the authority of a foreign
regulator.
This particular section highlights one of the
most important aspects of regulating,
supervising and trading in a multi-jurisdictional
and regulatory environment. A scheme cannot
comply with every jurisdiction’s requirements –
it is just simply impossible. Hence, it is
practically important that the scheme’s
regulatory domicile determine the specifics of
the scheme, otherwise an investor who has
assessed a scheme and agreed, at that point in
time, to assume a certain risk profile or
structure, finds that a subsequent other
regulator has seen fit to disregard his
contractual relationship with the scheme by
enforcing terms and conditions, including
additional costs, onto him or her.
We would suggest that a fee should not be
payable in respect of notifications as this is not
currently the position.
The purpose is to ensure that the
scheme remains permissible for
solicitation in SA or reclassify with
concomitant conditions. Accordingly, the
comments are misplaced.
notwithstanding that an
application for approval
of the change may be
pending.
6 Change of name
Paragraph 9
9 Any application for approval in
terms of paragraph 6(b) of this
Notice must be accompanied by
Page 30 of 31
Please see comments above.
The administrator process will require a
fee and time spent on the process will
determine the fee to be charged.
PUBLIC COMMENT MATRIX
2nd DRAFT CONDITIONS IN TERMS OF WHICH FOREIGN COLLECTIVE INVESTMENT SCHEMES
MAY SOLICIT INVESTMENTS IN THE REPUBLIC
November 2013
CONDITION
WORDING / PROPOSED
WORDING
COMMENT
FSB RESPONSE
The Conditions are welcomed, but further
clarity is required as to the specifics where
elements of subjectivity or discretion have
been included.
If, however, the broad principle is to
acknowledge and respect other foreign
regulators and their regulatory environment, a
simple and predictive process will create an
inclusionary environment in the Republic,
which, in the long term, should benefit the
Registrar and investors alike.
I would appreciate being included in your next
round of changes.
Unfortunately we have concluded the
process.
the prescribed fee as determined
by the registrar.
General
Thank you to all commentators
List of Commentators:
ASISA
BlackRock
Christopher Moore
Edward Nathan Sonnenberg
Page 31 of 31