SOUTH AFRICA- The plethora of laws recently enacted to bring the South African investment environment up to international standards raise the costs of compliance for affected companies, but they will give comfort to investors grown weary - and in some cases poor - through hit-and-run sales tactics and lax reporting standards.
The five most important pieces of legislation are:
- The Collective Investment Schemes Control Act (CIS), which replaces the old Unit Trust Control and Participation Bonds Acts.
- The Financial Advisory and Intermediary Service Act (FAIS), which imposes a code of conduct on intermediaries and sets minimum professional standards for those involved in advising or marketing financial products.
- The Promotion of Access to Information Act (PAIA), which guarantees individuals’ access to information about them held by the State or any other organisation.
- The Electronic Communications Act gives legal standing to electronic data and does away with the requirements for documents to be in writing and the need for signatures.
- The Financial Intelligence Centre Act (FICA), more colloquially know as the Money Laundering act.
“These new acts are not aimed simply at generating more red tape and administrative hassles but are focused on the key areas of enhancing investor protection, enshrining the right to information, facilitating the flow of electronic business and record keeping and guarding against possible money laundering activities,” said asset manager Fairhead’s compliance officer Tasneem Gangat.
This legislation follows the introduction in July 2001 of policyholder protection rules which obligate advisers to be completely transparent in their dealings with clients, disclosing all costs, benefits, exemptions and expected investment returns, while providing recourse for clients in the event of bad or inaccurate advice.
Complying with the various acts may cause problems for the companies involved, added Gangat.
Companies will at the very least have to appoint an information officer to deal with the PAIA and a compliance officer to deal with the FAIS and CIS bills.
Despite the avalanche of laws, there are still grey areas. For example, the PAIA can be subverted by compelling clients to sign confidentiality contracts - though this is certainly against the spirit of the Act and may be tested in the courts.
The CIS Act covers all unitised portfolios, which creates a problem all on its own, as many insurance and retirement funds are unitised for performance calculation purposes but are not regulated by the CIS Act as they are covered by the Insurance and Pension Funds Act.
“This has created an uneven playing field whereby hedge funds, for instance, are permissible investments for insurance funds, but are not permitted for unit trusts,” said Gangat.
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