South Africa: The Asset Management Review - South Africa Section

Last Updated: 4 December 2012
Article by Arabella Bennett and Johan Loubser

Most Read Contributor in South Africa, September 2018

I OVERVIEW OF RECENT ACTIVITY

The regulatory requirements affecting the asset management industry in South Africa are continuously being refined by the applicable policymakers and regulators. In the past couple of years the industry has seen, among other things:

  1. an increased focus by the regulator on the competence of individuals providing and overseeing the provision of financial services;
  2. an overhaul of the prudential investment limits applicable to pension funds;
  3. the introduction of specific requirements that must be met before pension funds may invest in private equity funds or conclude securities lending transactions; and
  4. the removal of key credit ratings requirements from certain prudential investment requirements.

These and other changes are discussed against the background of the relevant regulatory requirements.

II GENERAL INTRODUCTION TO the REGULATORY FRAMEWORK

The national government department responsible for setting policy in respect of the regulation of private and public sector investment in South Africa is the National Treasury headed by the Minister of Finance. The main regulators responsible for administering applicable legislation are the Financial Services Board ('the FSB') and the South African Reserve Bank ('the SARB').

The FSB supervises and enforces compliance with the laws regulating financial institutions and the provision of financial services.1 The FSB is organised in sector-specific departments, each headed by a registrar and deputy registrar (e.g., the Pension Funds Department is headed by the Registrar of Pension Funds). The legislation administered by the FSB is fragmented, with a specific piece of primary legislation applying to each of the different types of financial institutions and financial services providers regulated by the FSB, namely exchanges, insurance companies, pension funds, collective investment schemes, friendly societies and financial services providers.2 Broadly speaking, subordinate legislation is made by the Minister of Finance, while the FSB is given wide powers to regulate approved financial institutions and financial services providers through conditions, directives, rules and the like.

The SARB is responsible, among other things, for formulating and implementing monetary policy, supervising the banking sector and administering South Africa's system of exchange controls.3

It is the stated policy aim of the government to move toward a 'twin peaks' model of regulation, in terms of which supervision and monitoring of the health and soundness of financial institutions will generally be exercised by the SARB, and financial market conduct will be regulated by the FSB.4 No detailed proposals have been published in this regard.

This chapter will focus on various regulatory matters affecting financial institutions and investment vehicles. It should be noted, in addition, that financial services providers (other than providers who are specifically regulated in terms of other legislation, such as stockbrokers and managers of collective investment schemes)5 who provide financial services in South Africa are subject to detailed regulation under the Financial Advisory and Intermediary Services Act (Act 37 of 2002) ('the FAIS Act'). In addition, financial services providers who administer the investments of pension funds are subject to regulation under Section 13B of the Pension Funds Act (Act 24 of 1956) ('the PFA'). At present, the following three types of licences issued under the FAIS Act are relevant in the asset management context: category I (issued to financial services providers providing non-discretionary intermediary services or advice), category II (issued to financial services providers who provide discretionary fund management) and category III (issued to administrative financial services providers who aggregate client funds or securities, often through providing 'one-stop' investment platform services).

A recent requirement introduced by the FSB in relation to financial services providers is that individuals exercising oversight over the rendering of financial services by a licence holder under the FAIS Act (termed 'key individuals') or who represent the licence holder in rendering financial services to clients (termed 'representatives') must, in order to illustrate the required level of competence, successfully complete certain regulatory examinations prescribed by the FSB.6 A limited exemption applies to this requirement in respect of persons not domiciled in South Africa who are licensed under the FAIS Act to provide intermediary services only.7

III COMMON ASSET MANAGEMENT STRUCTURES

Investor funds are commonly pooled for investment purposes through two types of FSB-regulated financial institutions, namely collective investment schemes and long-term insurance companies who issue linked policies.

Other types of investment structures (not directly regulated by the FSB) include exchange traded funds (other than those registered as collective investment schemes) and private investment vehicles housed, for example, in partnerships and trusts.

i Collective investment schemes

Collective investment schemes are managed and administered by a manager.8 The administration of each scheme is overseen by a trustee or custodian.9 Each scheme is established by way of an agreement (referred to in the legislation as a 'deed') between the manager and the trustee or custodian.10 In practice, the terms of such agreements follow model wording provided by the FSB. A scheme would typically have more than one portfolio or 'fund'. Prior FSB approval is required before a person may act as a manager, or a trustee or custodian, and before the manager may establish a scheme or a portfolio thereunder. To date, collective investment schemes have been regulated on the basis that all approved schemes should be suitable for investment by members of the general public. There are no schemes that are subject to a lighter degree of regulation on the basis of limited distribution practices or the sophistication of investors.

Three types of domestic collective investment schemes are currently permitted: collective investment schemes in securities, property and participation bonds.11 Collective investment schemes in securities (which also include money-market funds, feeder funds and funds of funds) make up the overwhelming majority of the approved schemes, and collective investment schemes in property and participation bonds are relatively rare.12

Collective investment schemes are subject to detailed prudential investment requirements. Board Notice 80 of 2012 ('BN80'), which came into effect on 1 July 2012, sets out the portfolios that may comprise a collective investment scheme in securities, the types of investments that may be included in portfolios of a collective investment scheme in securities, as well as the conditions, limits and the manner in which the portfolios and securities may be included. It also sets out the conditions for inclusion of listed and unlisted derivative instruments in a portfolio. Collective investment schemes in securities are open-ended, and managers are typically required to provide valuations and redemptions on a daily basis.

Broadly speaking, foreign collective investment schemes may not be marketed to members of the public unless the applicable scheme has been approved by the FSB.13 The requirements for approval include considering whether or not the foreign jurisdiction in which the foreign collective investment scheme is domiciled has a regulatory regime for collective investment schemes of at least the same standing as that of South Africa, and whether the foreign collective investment scheme poses investment risks that are higher than would be permitted for a comparable scheme in South Africa.14

ii Linked policies

A well-known financial product used for investment purposes is a 'linked policy' issued by a long-term insurance company. A linked policy is a long-term policy of which the amount of the policy benefits is not guaranteed by the long-term insurer, but is to be determined solely by reference to the value of particular assets or categories of assets that are specified in the policy and are actually held by or on behalf of the insurer specifically for the purposes of the policy.15 Given the circumscribed nature of the insurer's liability under such a linked policy, assets in which a linked policy is invested need not be spread in accordance with the prescribed prudential investment requirements for insurance companies.16 The policyholder or its investment manager usually specifies the assets or types of categories of assets to be held by the insurer for the purposes of the policy. Use of an insurance policy in the above circumstances is often referred to as making use of a 'life wrapper'.

iii Other structures

One of the most significant new trends in the South African asset management sector has been the growth in passively managed funds, with exchange traded funds becoming more prevalent as an asset class. As of April 2012, 37 exchange traded funds were listed on the Johannesburg Stock Exchange ('the JSE').17 Exchange traded funds could in certain circumstances fall to be regulated as collective investment schemes, and would otherwise typically fall to be regulated by the Companies Act18 and the JSE.

We discuss two common vehicles used for private investment structures, namely the en commandite partnership and the bewind trust, in our discussion of hedge funds and private equity funds in Section VI, infra.

IV MAIN SOURCES OF INVESTMENT

Asset managers, capital markets and financial products are utilised predominantly by a small segment of the population, consisting mainly of institutional investors and a small pool of high-net-worth individuals. This investment infrastructure is mostly inaccessible to the majority of the South African population, most of whom live at or below the poverty line. This position is reflected in South Africa's low gross national savings rate, which was estimated by the World Bank to be in the region of 16 per cent of gross domestic product at the end of 2009.19

i Capital markets

The JSE is the largest exchange in Africa and one of the 20 most valuable stock exchanges in the world by market capitalisation, with a market capitalisation of approximately 7 trillion rand at the end of May 2012.20 (According to a report commissioned by the JSE, as at 31 December 2010 foreign nationals were the owners of 33 per cent of the equity listed on the JSE).21

ii Assets under management

According to a National Treasury policy document,22 in June 2010 long-term insurers had assets of 1,440 billion rand (60 per cent of South Africa's gross domestic product), short-term insurers had assets of 90 billion rand (4 per cent of gross domestic product), and public and private pensions had assets of 1,480 billion rand (62 per cent of gross domestic product).23 South Africa's collective investment schemes industry had approximately 1 trillion rand under management at the end of 2011.24 The private equity industry had an estimated 115.8 billion rand under management as at 31 December 2011,25 of which 47 per cent (approximately 55 billion rand) of the funds raised (and not yet returned to investors) emanated from local investors.26 The hedge fund industry had approximately 31.4 billion rand under management as at the end of June 2011.27

V KEY TRENDS

The global financial crisis has brought about a shift in the regulation of certain significant players in the South African asset management industry. Key features of this shift have included:

  1. the smaller role accorded to credit ratings and the introduction of proposed new legislation governing the operation of credit rating agencies;
  2. increased regulation of certain derivative transactions;
  3. the move by the South African regulators to oversee and control investment vehicles and activities, which previously enjoyed limited oversight; and
  4. the use of increasingly sophisticated regulatory measures.

These developments are discussed in further detail below.

i Credit ratings

The departure from a ratings-based regime has manifested in the recent removal of key credit ratings requirements from the revised prudential investment requirements applicable to collective investment schemes28 and the omission of credit ratings requirements in the revised prudential investment requirements applicable to pension funds.29 Moreover, the South African legislature is considering new legislation that will create statutory duties for credit ratings agencies and impose a new code of conduct on these agencies.30

ii Derivative regulation

Another recent trend in the South African asset management industry has been the initiative to bolster derivatives regulation, both in the context of listed and over-the-counter markets. The proposed Financial Markets Bill31 seeks (among other things) to regulate over-the-counter derivatives for the first time in South Africa, in an effort to align South African practices in this regard with international norms (including the establishment of local and offshore trade repositories32 and independent clearing houses33). This trend is also reflected in the draft conditions and regulations, which will set clear parameters for the investment by pension funds in certain derivative instruments, once finalised.34

iii Regulation of previously unregulated participants and investments

Most notably, the FSB has taken significant steps to close what it perceives to be regulatory gaps and to exercise increasing control over certain key players in the asset management industry. In particular, the FSB in March 2012 published conditions35 for investment by pension funds in private equity funds. It is expected to publish conditions for investment by pension funds in hedge funds towards the end of 2012.

iv Increasingly sophisticated regulatory measures

An example of the increased sophistication in the regulatory oversight exercised by the FSB is the Solvency Assessment and Management framework ('the SAM framework'), which is being developed by the FSB for the purposes of establishing a risk-based supervisory regime for the prudential regulation of both long-term and short-term insurers in South Africa (including reinsurers). The SAM framework is intended to align the South African insurance industry with international standards, specifically the Solvency II regime implemented for European insurers and reinsurers. Final implementation of the SAM framework is currently envisaged to be 1 January 2015, but insurers will be expected to calculate and report on the regulatory requirements under the SAM framework from the beginning of 2014 in parallel with the existing regime.36

VI SECTORAL REGULATION

i Insurance

Introduction

The South African insurance industry is split between the long-term insurance industry (otherwise known as 'life insurance') and the short-term insurance industry (typically termed 'general insurance' in other countries).

Regulatory framework

South Africa's long-term insurance industry is regulated by the LTIA,37 while the short-term insurance industry is governed by the Short-term Insurance Act ('the STIA').38 There is no bespoke legislation in place for the reinsurance industry, which is currently regulated by the aforementioned acts, but the South African regulator is considering overhauling the legislative framework of the reinsurance industry in South Africa.39

South African insurers have an obligation to ensure that they are always able to meet their liabilities and their capital adequacy requirements, as determined by the insurer's statutory actuary.40 To this extent, insurers have to adhere to specific prudential spread requirements, which set out the maximum permitted holdings in particular kinds of assets.41 Compliance with both the capital adequacy and prudential requirements is verified through the submission to the FSB of unaudited quarterly returns and the audited annual returns. In order to protect their assets, insurers are prohibited from encumbering their assets, borrowing any asset and giving security in relation to obligations between other persons.42 Insurers may furthermore only invest in derivatives for the purpose of reducing investment risk or for efficient portfolio management, and securities lending is subject to specific requirements, including the holding of adequate collateral in the form of cash or securities, or both.43

Trends

We have noticed an increased interest in offshore and local investment offerings to South African high-net-worth individuals and institutional investors through policies (including linked policies) issued by long-term insurance companies. We have also noted that private sector pension funds are becoming increasingly interested in outsourcing their pensioner liabilities to long-term insurers.

ii Pensions

Introduction

South African pension funds that are registered under the PFA are regulated in terms of the PFA by the FSB.44 In March 2011 the Minister of Finance published new regulations prescribing the prudential investment limits applying to pension funds. These investment limits are commonly referred to as 'Regulation 28'.45

Overview of Regulation 28

The board of trustees of a pension fund has a fiduciary responsibility to act in the best interest of the members of the fund, whose benefits depend on the responsible management of the pension fund's assets. In the FSB's view, there is a general lack of investment expertise among trustees of pension funds, and therefore the relatively new Regulation 28 remains primarily rules-based.46 Regulation 28 specifies that a pension fund may appoint specialist advisers such as asset managers, asset consultants and risk consultants to assist with investment decisions, but the board of the pension fund ultimately remains responsible for the management of the pension fund's assets.47

Asset limits

A pension fund may only invest in the kinds of assets specified in Regulation 28, and within the relevant issuer and aggregate limits that are defined per asset class. By way of example, Regulation 28 limits the maximum exposure of a pension fund to equity securities to 75 per cent of the aggregate fair value of the total assets of a fund,48 and provides that (in addition to relevant sub-limits) the total exposure of a pension fund to unlisted debt instruments, unlisted shares, unlisted interests in property companies, hedge funds, private equity funds and any other asset not specifically referred to in the relevant schedule may not exceed 35 per cent of the aggregate fair value of the total assets of a pension fund.49 Should a pension fund be of the opinion that it would be prudent to exceed any of the prescribed limits, it can approach the FSB for a possible exemption.50

The look-through principle

When determining the asset class of a specific asset for the purposes of determining compliance with Regulation 28, a pension fund must apply the 'look-through' principle.

In terms of this principle, which is intended to prevent the circumvention of the prescribed limits, a pension fund must always disclose and report on the underlying assets to which it has economic exposure if the instrument directly held by the pension fund merely provides a conduit to such exposure.51 The principle does not apply to investment by pension funds in private equity and hedge funds that conform to the conditions prescribed in Regulation 28.52

Borrowing restrictions

A pension fund may only borrow for bridging purposes to maintain sufficient liquidity for its operational requirements.53

Securities lending

A pension fund may engage in securities lending, subject to certain prescribed conditions (which need to be met by 31 December 2012) under Board Notice 2 and 4 of 2012 ('the Securities Lending Notice'). Any securities that are subject to a securities lending transaction remain the assets of the pension fund (and therefore subject to the Regulation 28 prudential spread limits) and must be disclosed in the annual financial statements of the pension fund as assets of the pension fund.

Pension funds may only conclude securities lending transactions in terms of a legally binding written agreement with the counterparty that complies with the definition of a 'master agreement' as contemplated by Section 35B of the Insolvency Act,54 and such agreement must furthermore comply with certain requirements set out in the Securities Lending Notice.55 Post-insolvency set-off is, as a general rule, not permitted under South African law, but Section 35B of the Insolvency Act allows for netting and set-off provisions contained in such 'master agreements' to be enforced post-insolvency of a party to such an agreement.

Derivatives

Regulation 28 allows pension funds to invest in derivative instruments subject to certain prescribed conditions. As of July 2012 these conditions have not yet been finalised.

Trends

An ever-growing trend has been the implementation of a number of liability matching strategies by South African pension funds. These can take a number of forms, including structured bank deposits, swap and bond transactions, long-term policies, outsourcings and active mandates. Central to many of these cash-flow matching transactions is the hedging of inflation-related risks.

iii Real property

Insurance companies and pension funds are significant investors in commercial property. Two other types of South African institutional investors who invest in commercial property are property unit trusts and property loan stock companies. Property unit trusts are collective investment schemes in property regulated as collective investment schemes by the FSB. Property loan stock companies are not directly regulated by the FSB. The term 'loan stock' signifies the practice of such companies to issue linked units to investors, with each linked unit consisting of an equity share and a variable rate debenture. Both property unit trusts and property loan stock companies are often listed on the JSE.

The 2012 Draft Taxation Laws Amendment Bill,56 which has been published for comment, proposes changes to the Income Tax Act57 to allow for the introduction of the internationally-recognised real estate investment trust ('REIT') framework. Broadly speaking, in order to qualify as a REIT under the proposed taxation framework, an entity must be listed with the JSE58 and classified by the JSE as a REIT. The draft tax legislation contemplates that a REIT will be exempt from capital gains taxation on the disposal of its assets. In addition, the draft legislation contemplates that distributions by a REIT will be deemed to be expenditure incurred by the REIT in the production of income and therefore fully deductible from the revenue of that REIT if, during a particular year of assessment, more than 75 per cent of the gross income of that REIT consists of amounts received by or accrued to the REIT in the form of rentals or other similar amounts derived from immoveable property, or amounts received by that REIT by way of a distribution from another REIT. Such distributions will be deemed to be rental from a source in South Africa and taxable in the hands of the investors in the REIT.

iv Hedge funds

At present, provided that hedge funds are not offered to members of the public, the structures in which hedge funds are housed are not directly regulated by the FSB. For various reasons, the investment structures in which the majority of South African hedge funds are typically housed are either en commandite partnerships or debenture structures.

En commandite partnerships are regulated by the common law. The main advantage of this type of partnership is that a commanditarian, or limited partner, is not liable for the debts of the partnership in an amount greater than its investment commitment to the partnership (provided applicable common law requirements are met).59 The managing partner (also known as the general partner) has unlimited liability for the debts of the partnership.

Investors in debenture structures subscribe for debentures issued by a company. The company lends or contributes the proceeds of such subscription to a trust. The trust appoints a hedge fund manager to manage its portfolio of assets, and vests income and gains resulting from the portfolio in the holders of the debentures (in their capacity as beneficiaries of the trust).

Pension funds are significant investors in hedge funds. Under Regulation 28 pension funds are permitted to invest up to 10 per cent of their assets in hedge funds, subject to such conditions as the FSB may adopt. The FSB published draft conditions for comment in June 2012, and it is expected that the FSB will finalise the relevant conditions towards the end of 2012.

Financial services providers to South African hedge funds typically fall to be regulated under the FAIS Act. Managers who manage hedge fund portfolios on a discretionary basis require a specific category of licence with heightened requirements (called a category IIA licence) under the FAIS Act.60 A 'hedge fund' is defined for the purposes of the FAIS Act as 'a portfolio which uses any strategy or takes any position which could result in the portfolio incurring losses greater than its aggregate market value at any point in time, and which strategies or positions include but are not limited to leverage or net short positions'.61

v Private equity

At present, provided that private equity funds are not offered to members of the public, the structures in which private equity funds are housed are not directly regulated by the FSB. For various reasons, the investment structures in which the majority of South African private equity funds are typically housed are either en commandite partnerships or bewind trusts.

The basic features of an en commandite partnership are set out above. A bewind trust is a type of trust vehicle registered under the Trust Property Control Act,62 in terms whereof the applicable assets that are subject to the trust arrangements are owned by the beneficiaries of the trust, but the trustees of the trust hold and manage such assets.63 In the context of a private equity vehicle structured as a bewind trust, the cash contributions of the investors to the trust form the initial assets of the trust. Each investor is a beneficiary of the trust, and the investors own the assets of the trust jointly in undivided shares in proportion to their respective contributions.

Pension funds are significant investors in private equity funds. Under Regulation 28 pension funds are permitted to invest up to 10 per cent of their assets in private equity funds, subject to such conditions as the FSB may adopt. The FSB has issued conditions for investment by a pension fund in a private equity fund, which conditions will bind pension funds from 30 September 2012.64

vi Other sectors – the public investment corporation ('the PIC')

The PIC is the principal asset manager for South Africa's public sector (including the Government Employees Pension Fund) and has, as an additional mandate, the obligation to contribute to economic development. The PIC is wholly owned by the South African government. It is regulated by its own statute, the Public Investment Corporation Act,65 and as a public entity is bound to comply with the financial management and governance provisions of the South African Public Finance Management Act.66 As at 31 March 2011 it reported assets of 1 trillion rand under management.-

The PIC has allocated 5 per cent of its funds under management for investment in Africa other than in South Africa, and 5 per cent of its funds in offshore investments other than in Africa as at 31 March 2011.68 Furthermore, it is active in promoting environmental, social and governance issues in the South African marketplace, and is one of the key supporters of the recently drafted Code for Responsible Investing in South Africa.69

VII TAX LAW

South African tax legislation has been, and continues to be, subject to numerous changes that affect the asset management industry. A number of the pertinent changes (and proposed changes) that have occurred in the past year are set out below.

i Introduction of dividends tax

The previous secondary tax on companies regime ('the STC regime') (a tax levied at a rate of 10 per cent on South African companies in respect of dividends declared by such companies) has been replaced with a dividends tax regime (a tax on dividends paid by South African companies, or companies the shares of which are listed on a South African exchange at a rate of 15 per cent70) with effect from 1 April 2012.71 The dividends tax is the liability of the beneficial owner of the dividend, while the company declaring the dividend, or certain regulated intermediaries (such as members of the JSE or central security depository participants) have a withholding obligation. Important aspects in which the new regime differs from the STC regime include that it enables the beneficial owner to utilise treaty relief under applicable double taxation agreements and contains a number of additional exemptions, such as an exemption in respect of dividends paid to South African companies.

ii Interest withholding tax

An interest withholding tax has been introduced, which will take effect from 1 January 201372 at an expected rate of 15 per cent73 on any interest paid to a non-resident to the extent that the interest is regarded to be from a source within South Africa (in this regard, certain deeming source rules have been introduced). The recipient of the interest is principally liable for the tax, but the payer of the interest has a withholding obligation. A number of exemptions in respect of such tax are provided for, including interest in respect of government debt, listed debt or debt owed by a bank.

iii Income tax: changes to 'source' and 'residence' rules

South Africa imposes income tax on South African tax residents, and in respect of non-residents, on amounts received or accrued to such non-residents that are from a South African source.

Recently, statutory provisions have been introduced to determine the source of amounts.74 These amendments result in at least partial relief from South African tax for non-resident investors, provided that the relevant investment fund is not a resident of South Africa (see below). This relief is, however, currently limited to amounts derived in respect of the disposal of assets and does not include amounts derived from exposure to derivative instruments.

In addition, in terms of draft legislation,75 it is proposed that a foreign investment fund (which is a defined concept) will not be effectively managed in South Africa by reason of having a South African fund manager. The result of this is that having a South African fund manager will not result in a non-resident fund becoming a South African resident, provided the requirements of the relevant provisions are met.

iv Hybrid debt and hybrid interest

New rules have been proposed in respect of debt that contains equity-like characteristics.76 Should these rules find application, affected debt will be treated as equity for South African tax purposes and no deduction of the interest paid will be allowed.

VIII OUTLOOK

Significant new developments on the horizon are the South African government's proposed creation of a mandatory national social security fund that provides pension, life insurance and disability benefits,77 and the introduction of the 'twin peaks' regulatory model. While the precise nature of these reforms is not yet finalised, they are likely to have a marked impact on the South African asset management industry.

With respect to specific regulatory measures, in the next 12 months the industry expects to see the finalisation of the respective conditions under Regulation 28, subject to which a pension fund may have exposure to derivative instruments and to hedge funds, the finalisation of the Financial Markets Bill and the finalisation of a number of changes to the present regulatory framework, as contemplated in the Financial Services Laws General Amendment Bill 2012.

Footnotes

1 Section 3(a) of the Financial Services Board Act, 97 of 1990.

2 See, for example, the Collective Investment Schemes Control Act (Act 45 of 2002) ('CISCA'), Financial Advisory and Intermediaries Services Act (Act 37 of 2002), Friendly Societies Act (Act 25 of 1956), Long-term Insurance Act (Act 52 of 1998), Pension Funds Act (Act 24 of 1956), Short-term Insurance Act (Act 53 of 1998) and the Securities Services Act (Act 36 of 2004).

3 See Section 10 of the South African Reserve Bank Act (Act 90 of 1989).

4 National Treasury Budget Vote Speech delivered in parliament on 18 May 2011 by the Minister of Finance, Pravin Gordhan, p. 7.

5 Section 45(1)(a)(i) and (ii) of the FAIS Act provides that any 'authorised user', 'clearing house', 'central securities depository' or 'participant' as defined in Section 1 of the Securities Services Act, 36 of 2004, and a 'manager' as defined in section 1 of the Collective Investment Schemes Control Act, 2002, shall be exempt from the application of the FAIS Act to the extent that the rendering of financial services is regulated by or under those Acts respectively..

6 Determination of Fit and Proper Requirements for Financial Services Providers, 2008, Paragraphs 6 and 10.

7 Board Notice 166 of 2012.

8 Sections 4 and 5 of CISCA.

9 Sections 68 and 69 of CISCA.

10 Section 97 of CISCA.

11 Parts IV, V and VI of CISCA.

12 The FSB website lists only six approved collective investment schemes in property and the same number for collective investment schemes in participation bonds (www.fsb.co.za, accessed on 31 July 2012).

13 Section 65(3) of CISCA.

14 Paragraphs 3 and 6(a) of GN2076 of 1 August 2003.

15 See the definition of 'linked policy' in Section 1 of the Long-term Insurance Act (Act 52 of 1998) ('the LTIA') read with Directive 146.A.i of 30 June 2010.

16 Section 31(1) of the LTIA.

17 JSE Limited Equity Market Report, compiled April 2012.

18 Act 71 of 2008.

19 World Bank, South Africa Economic Update – Focus on savings investment and inclusive growth (1 July 2011).

20 JSE Equity Market Profile (May 2012), accessed from www.jse.co.za on 12 July 2012.

21 Black Ownership of the JSE (October 2011), Trevor Chandler and Associates, accessed from www.jse.co.za on 30 July 2012.

22 A safer financial sector to serve South Africa better; 2011 National Treasury Policy document, 23 February 2011, published by the National Treasury of the Republic of South Africa, p. 3.

23 The long-term insurers' assets include assets of pension funds managed by insurance companies.

24 www.asisa.org.za/index.php/industry-statistics/collective-investment-schemes.html, accessed on 11 July 2012.

25 KPMG and SAVCA Venture Capital and Private Equity Industry Performance Survey of South Africa covering the 2011 calendar year (May 2012).

26 Ibid.

27 Unpublished presentation by ASISA to the FSB on 25 June 2012, p.14.

28 BN80.

29 Regulation 28 of the Regulations issued under Section 36 of the PFA.

30 Credit Rating Services Bill published in Gazette No. 35022 of 7 February 2012.

31 Published in Gazette No. 35022 of 7 February 2012 and due to be enacted by the end of 2012.

32 Chapter VI of the Financial Markets Bill.

33 Chapter V of the Financial Markets Bill.

34 See Section VI.ii, infra.

35 Notice No. 1 of March 2012: Conditions for Investment in Private Equity Funds, Approval in Terms of Section 5(2)(e) of the PFA.

36 Financial Services Board: Solvency Assessment and Management, 2012 Update, March 2012, p. 4.

37 Long-term Insurance Act (Act 52 of 1998).

38 Act 53 of 1998.

39 Financial Services Board: Terms of Reference, Solvency Assessment and Management, Revised Regulatory Framework for Reinsurance Business in South Africa.

40 Section 28 of the STIA and Section 29 of the LTIA.

41 Section 29 of the STIA and Sections 30 and 31 of the LTIA.

42 Section 33(1) of the STIA and Section 34(1) of the LTIA.

43 Section 33(2) of the STIA and Section 34(2) of the LTIA.

44 Section 3 of the PFA read with Sections 1 and 13 of the Financial Services Board Act (Act 97 of 1990). Certain South African pension funds have been established under their own statute and do not fall to be regulated by the FSB, and are not subject to the provisions of the PFA (unless the latter has been specifically incorporated by reference in the pension fund's constitutional framework).

45 So named since the requirements are contained in Regulation 28 of the Regulations to the PFA.

46 Final Regulation 28 Explanatory Memorandum, p. 7.

47 Regulation 28(2)(d).

48 Item 3.1 of Table 1 of Regulation 28.

49 Regulation 28(3)(f ).

50 Regulation 28(9).

51 Regulation 28(4).

52 On 15 March 2012 the FSB published conditions for investment by pension funds in private equity funds under Notice No. 1 of 2012.

53 Regulation 28(5).

54 Act 24 of 1936.

55 The market practice in South Africa is to conclude securities lending transactions in terms of a global master securities lending agreement as published by the International Securities Lending Association, together with a South African schedule thereto as published by the South African Securities Lending Association.

56 www.treasury.gov.za/public%20comments/TLAB/draft%20TLAB%202012%20for%20public%20comment.pdf, accessed on 31 July 2012. See the proposed new Section 25BB.

57 Act 58 of 1962.

58 According to the proposed definition of a 'REIT', a REIT can also be a property subsidiary of such listed company, as contemplated in the JSE Listings Requirements.

59 Law of South Africa, 2nd ed., Vol. 19: 'Partnership' by JJ Henning, Paragraph 258; Joubert & Faris (editors).

60 See Paragraph 8A of BN 79 of 8 August 2003, as amended.

61 See Paragraph 2 of BN 79 of 8 August 2003, as amended. 'Leverage' and 'net short position' are also defined terms in such notice.

62 Act 57 of 1988.

63 Law of South Africa, 2nd ed., Vol. 31: 'Trusts' by MJ De Waal and others, Paragraph 545; Joubert & Faris (editors).

64 Notice No. 1 of 15 March 2012: Conditions for Investment in Private Equity Funds.

65 Act 23 of 2004.

66 Act 29 of 1999.

67 PIC Integrated Report 2011, Celebrating 100 years of success 1911-2011, p. 6.

68 Ibid.

69 Ibid.

70 In terms of the draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill, 2012, expected to come into operation with retrospective effect from 1 April 2012.

71 The dividends tax provisions have been inserted in the Income Tax Act (Act 58 of 1962) in terms of Act 60 of 2008, as substituted by Act 17 of 2009.

72 The interest withholding tax provisions have been inserted in the Income Tax Act (Act 58 of 1962) in terms of Act 7 of 2010.

73 In terms of the draft Taxation Laws Amendment Bill, 2012.

74 As per the amendments to Section 9 of the Income Tax Act (Act 58 of 1962) as introduced by Act 24 of 2011.

75 As per the proposed amendments to the definition of 'resident' read with the definition of 'foreign investment entity' in Section 1 of the Income Tax Act (Act 58 of 1962), as introduced by the draft Taxation Laws Amendment Bill, 2012.

76 As per the proposed amendments to, among others, Sections 8F and 8E, as well as the introduction of Sections 8FA and 8EA, in terms of the draft Taxation Laws Amendment Bill, 2012.

77 Presentation to the press by National Treasury on 14 May 2012 (www.treasury.gov.za/comm_ media/press/2012/2012051403.pdf, accessed on 31 July 2012).

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