South African legislation makes provision for the regulation of most investment vehicles including pooled investment vehicles and most types of exchange traded funds.
The Collective Investment Schemes Control Act, No. 45 of 2002 (CISC Act), regulates the promotion of local and foreign collective investment schemes in the country. It provides that soliciting investment in a foreign collective investment scheme that is not approved is an offence punishable by a fine or a term of imprisonment. This penalty is only applicable to schemes that are offered or marketed to members of the public for only such schemes require prior approval. Under local rules and regulations, even institutional investors would qualify as “members of the public” and there are no sophisticated investor exemptions.
Specific conditions relating to foreign collective investment schemes have been promulgated which regulate the marketing and investment of foreign collective investment schemes in South Africa.
Exchange traded funds are unleveraged securities listed on the Johannesburg Stock Exchange (JSE) that track the performance of a basket of shares, bonds or commodities. They are subject to the CISC Act (in that they are usually structured as collective investment schemes) as well as the JSE's listing requirements.
Hedge funds are as yet unregulated in South Africa. The National Treasury and Financial Services Board have, however, released draft Regulations for regulating hedge funds as collective investment schemes under the CISC Act. While hedge funds themselves are currently not regulated, the conduct of hedge fund financial services providers is regulated by the Financial Advisory and Intermediary Services Act, No. 37 of 2002.
“Under local rules and regulations, even institutional investors would qualify as “members of the public” and there are no sophisticated investor exemptions.”
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