Regulatory Update: South Africa FSB clarifies current rules on hedge funds, issues discussion paper
The Financial Services Board (FSB) of South Africa and AIMA SA have clarified
the terms of a letter on hedge funds sent recently to approved investment
The letter outlined certain limitations relating to that approval in terms of the
Stock Exchanges Control Act, 1985 and The Financial Markets Control Act,
In addition, the FSB was re-affirming previous restrictions in terms of solicitation
for business as well as ensuring that no investment managers make
misrepresentations in terms of the extent of such approval.
In conjunction with the South African chapter of AIMA, the FSB has now
clarified the issues raised in that letter.
The approval granted to investment managers relates to their being approved to
buy and sell securities on behalf of their clients. It does not provide them with
any form of approval, tacit or implied, either to manage hedge funds or to sell
hedge funds to individuals or pension fund investors.
The management or sale of such product can still take place, subject to the
restrictions mentioned below, but such management or sale is not approved or
regulated by the FSB unless the product is in contravention of the prohibition on
pooling in the Collective Investment Schemes Control Act, 2003. This will not
affect the marketing of existing regulated products.
As such products are unregulated, providers of hedge funds are prohibited from
soliciting for investment into these funds. Solicitation is marketing in any form or
inviting members of the public by any means to invest in a specific fund.
Industry surveys would not be inviting investment into any specific fund and
would not be construed as solicitation.
The final point of this letter states that these managers may in no way make any
representation to clients that they are approved to manage hedge funds or
intimate that hedge funds are a regulated product in South Africa.
In terms of the current regulatory regime, hedge funds fall outside the scope of
existing regulation and there is nothing preventing investment managers from
conducting the business of a hedge fund provided that they do not represent to
have been approved by the FSB to manage and/or solicit for investment into
It is therefore suggested that any hedge fund material should state such
restrictions clearly on the face of such documentation and all participants in the
hedge fund industry must ensure that they act responsibly in their conduct.
Joint Discussion Paper Issued
A joint Discussion Paper has been issued in South Africa by the Financial
Services Board, the Association of Collective Investments and AIMA's South
It sets out the background to the local industry, considers international and local
trends in hedge funds and then discusses plans for the regulation of hedge
in South Africa.
A number of issues raised in the Paper will be crucial in determining the
direction that the regulatory process will take. In all, there are 20 questions
posed by the Paper. In order for the discussion process to be representative of
the various bodies that have vested interests in the planned regulation,
members of AIMA and other interested parties are asked to submit their
responses to the questions raised in this paper, in writing, to Kevin Shames,
Chairman of the AIMA South Africa Chapter. Kevin's email address is:
The deadline for submissions is 30 April 2004.
The discussion paper can be found at:
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