Regulation of Funds in South Africa

Regulatory Bodies

The regulatory landscape governing funds in South Africa is complex and multifaceted, overseen by various bodies and underpinned by a web of legislation.

The Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA) play pivotal roles in ensuring the market conduct and financial soundness of financial institutions, respectively. The Financial Intelligence Centre (FIC) and the South African Reserve Bank also contribute significantly to regulatory oversight, particularly in areas such as anti-money laundering and exchange control.

There is a raft of legislation which could be applicable to funds and fund managers including:

  • Collective Investments Schemes Control Act (CISCA)
  • Financial Advisory and Intermediary Services Act (FAIS)
  • Financial Markets Act (FMA)
  • Financial Sector Regulation Act

In addition, a new licensing regime may well be outlined in the proposed Conduct of Financial Information Act, presently only in Bill form which will amend and replace current legislation.

Private Equity and Venture Capital Funds regulation

Private equity funds are currently not regulated by the FCA although the service providers i.e. the managers and administrators are regulated under FAIS. The new proposed legislation under COFI regulates private equity funds under “Alternative Investment Funds” along with Hedge Funds.

Furthermore, Investments by retirement funds (i.e. pension and Provident funds) into private equity funds are now regulated under the Conditions for Investment in private equity funds (Notice 15 March 2012).

The Conditions require:

  • The fund manager be a member of the South African Venture Capital Association (SAVCA) or the African Venture Capital Association?
  • The auditors of the private equity fund should verify the assets twice annual and produce audited financial statements complying with IFRS reporting standards.
  • The PE fund must have clear policies and procedures for determining fair value of the assets in accordance with International Private Equity Valuation guidelines (IPEV) (valuations of unlisted equities are harder than obtaining daily pricing for listed equities)
  • Valuations should be verified annually by an independent third-party

Unfortunately, the legislation for Venture Capital Companies (VCCs) under section 12 J of the Income Tax Act has been repealed and has not been replaced by any alternative venture capital investment structure.

Hedge Fund Regulation

Currently two types of hedge funds may be registered:

  • retail funds which must comply with more detailed regulatory requirements; and
  • qualified investor funds which only permit investors who are qualified (experienced) investors and invest at least R1 million.

While private hedge funds remain unregulated (with the exception of their managers who are regulated under FAIS), hedge funds that invite members of the public to subscribe are regulated under CISCA and will also be regulated under “Alternative Investment Funds” under COFI.

The FSCA has also published Conditions for Pension Fund Investment in Hedge Funds permitting South African Pension Funds to invest in foreign hedge fund where this fund is approved under CISCA. (Guidance Note , 22 November 2012)

Exchange traded funds(ETFs)
These are regulated by the FSCA as collective investment schemes and by the JSE.

Real Estate investment trust
These are regulated by the FSCA as well as the JSE.

Collective investment schemes

Under the current legislation only five categories of collective investment schemes are permitted:

  • C.I.S. in securities
  • C.I.S. in property
  • C.I.S. and participation bonds
  • Retail hedge funds and
  • Qualified investor hedge funds

Prior approval from the FSCA is required to establish a collective investment scheme. The investment/ fund manager, the trustee or custodian, the formation of the actual fund are also regulated under CISCA and FAIS. South African collective investments schemes and foreign collective investment schemes approved in South Africa have to provide on a quarterly basis minimum disclosure documents.

Fund Managers Fees

Fee arrangements are subject to approval by the FSCA. Managers fees are often structured as a percentage of the value of the assets plus performance fee based on performance over a particular hurdle rate. The fees must be transparent ie there should be no undisclosed commissions. The Retail Distribution Review (RDR) considers annual reforms to the regulatory framework regarding fees while, in the future, COFI will probably include contact standards to regulate remuneration arrangements.

Marketing and sale of financial products

The marketing of financial products is regulated under FAIS. Generally, a Category 1 licence is required but for certain activities a Category 2 FSP license is required for persons who provide advice re long term insurance, pension fund benefits and [discretionary investment products?]

Holding a Category 1 FAIS license involves that the individuals and representatives are able to prove that they can comply with South African “fit and proper requirements” published under FÄIS and the completion of South African regulatory exams. Foreign collective investment schemes are required to open or appoint a South African office which should be capitalised with at least[ R2 million] or appoint a South African manager already authorised under CISCA.

Intermediary fees

Have there been more recommendations under the retail distribution review?

Taxation of funds

Under CISCA, collective investment schemes are generally taxed at the fund level, with the income and gains generated by the fund being subject to tax. However, investors in the fund may also be subject to tax on any distributions or gains they receive from the fund, depending on the nature of the distribution (whether income or capital) and their individual tax circumstances.


Looking ahead, ongoing regulatory reforms, such as the Retail Distribution Review (RDR) and potential future enactments of COFI, are expected to refine regulatory standards and address emerging challenges in the industry. These efforts aim to foster investor protection, market integrity, and sustainable growth within South Africa's funds sector, ensuring its continued contribution to the country's financial stability and economic development.

Alexandra Burger

Alexandra Burger

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