INVESTMENT REFORMS ON HOLD
The FSB has withdrawn a discussion document on significant amendments to the limits on the types of securities and assets in which collective investment scheme managers may invest.
The investment limits are set out in terms of Notice 1503 of 2005 issued in terms of the Collective Investment Schemes Control Act (Cisca).
The discussion document proposed a major expansion of the assets and securities that may be used, as well as easing the limitations on how much may be invested in any one security or asset. The intention was to bring South African collective investment schemes legislation in line with the European Union’s standards for collective investments, known as UCITS III.
Bert Chanetsa, the FSB deputy executive in charge of financial markets, says the re-write of Notice 1503 started before the international financial crisis.
“Many lessons have been learned as the crisis has unravelled. The decision was taken to review the proposed changes in the light of these important lessons and the needs of the South African investing public.”
At least one local unit trust management company has been affected by the change in tack: Coronation has been forced to close down a fund.
Pieter Koekemoer, the head of Coronation Unit Trusts, says Coronation launched the Irishdomiciled Global Latitude Fund on the basis of UCITS in anticipation of the changes in South Africa. However, it fell foul of the existing Notice 1503, because the fund was able to invest in any combination of regulated funds managed by third-party managers and direct securities, whereas local regulations do not allow this type of fund to have exposure to more than 20 percent of other funds.
No local investors had money in the Global Latitude Fund, but the fund has been closed and re-opened so that it meets the existing Notice 1503 requirements.
However, Koekemoer says he cannot fault the FSB’s caution. “The current key concern with the UCITS framework relates to overthe-counter trades (the trading of assets outside of a securities exchange),” he says.
It is understood that FSB concerns also extend to the role of credit rating agencies, which have been blamed in part for the financial market meltdown of the past year. Rating agencies were destined to play a greater role in assessing non-listed securities in terms of the proposed changes.