The Financial Sector Conduct Authority has published the final version of its Conduct Standard for collective investment scheme (CIS) managers.
“Conduct Standard 3 of 2025 (CIS) – Requirements for Managers of Collective Investment Schemes” will come into effect 12 months from the date of publication, which was 14 August 2025.
The Conduct Standard represents a comprehensive, consolidated conduct framework for CIS managers. Its purpose is to fulfil the following policy objectives:
- strengthen investor protection;
- clarify and standardise disclosure and prospectus practices;
- set out product-governance requirements (including target-market assessment and distribution strategies);
- reinforce trustee/custodian oversight (including sub-custodian arrangements); and
- formalise expectations for risk management, internal audit, and compliance functions.
The FSCA has framed the Standard as a response both to international peer review findings and to perceived weaknesses in the current CIS regulatory framework.
Read: FSCA publishes extensive draft Conduct Standard for CIS managers
The Standard is an interim measure pending the implementation of a holistic conduct regulatory framework that will apply to all financial institutions under the Conduct of Financial Institutions Bill.
Responses to stakeholder concerns
The Authority published the draft Standard for public comment in November 2023.
A total of 115 comments were received from five commentators, plus 10 additional comments on the Standard’s impact and general matters.
The main concerns raised by commentators and the FSCA’s responses to them are summarised below.
Permanent control functions and group arrangements
Commentators noted the proposal for a permanent risk management function that could not be outsourced. They highlighted that in group company contexts, risk management is often handled at a group level, so it is effectively outsourced. Commentators also questioned whether the risk and compliance functions should be responsible for ensuring the implementation of the risk management and compliance frameworks.
The FSCA agreed to allow outsourcing of control functions and heads of control functions, but only if appropriate given the nature, size, scale, and complexity of the manager. A footnote was added to the Conduct Standard to address group arrangements, considering the “nature and operating model” of the manager, which allows for the leveraging of group structures.
However, now that control functions can be outsourced, the final Standard includes a provision stating that the FSCA must be notified if a control function is outsourced.
The Authority agreed it is not appropriate to oblige the risk and compliance functions to ensure the implementation of the risk management and compliance frameworks. It has therefore revised the responsibilities of these functions.
Heads of control functions and notification requirement
Concerns were raised about the proposed heads of control functions, including whether multiple separate functions (such as internal audit) were intended, potentially increasing compliance costs. Commentators argued that in some entities, one person could serve as the head for multiple areas, such as at a group level.
The requirement for prior notification (30 days before appointment or termination) was seen as challenging because of timing issues.
The FSCA said Chapter 2 of the Standard allows for the proportional application of governance arrangements and control functions, recognising them as important lines of defence. Where appropriate, functions may be performed by a single person without appointing a separate head for each, provided there is clear segregation of duties and no self-review conflicts. However, the functions themselves must remain separate.
The notification requirement was adjusted to within 30 days after appointment. But the requirement for prior notification of termination was retained because the person terminating his or her role will typically have to work a notice period, and the provision makes an accommodation for exceptional circumstances.
Approval for the head of compliance was retained, because the Standard prescribes competency requirements, and these are the criteria against which an application will be assessed.
Internal audit function
Views on the internal audit function questioned whether it could be outsourced, given differences between group entities and smaller ones. Since the function was not proposed as “permanent” – unlike risk management – commentators inferred outsourcing might be permissible and sought confirmation on leveraging group arrangements.
The FSCA stated that risks are mitigated through proportional application and the allowance for outsourcing. For very small managers where this remains problematic, the manager can apply for an exemption. The Authority will assess such application in the context of the manager’s nature, size, scale, and complexity.
Churning
Commentators highlighted the practical difficulty for managers in identifying and preventing churning, describing it as a significant challenge or potentially impossible. They noted the absence of comparable requirements in other foreign jurisdictions and requested further engagement.
The FSCA acknowledged these difficulties but emphasised that managers must act in good faith, treat investors fairly, and conduct business transparently. Steps to mitigate churning by distributors are expected, such as addressing red flags – for example, frequent client movements to specific portfolios. Churning was identified as a major detriment to consumers in National Treasury’s 2011 policy paper, “A safer financial sector to serve South Africa better”, obliging the FSCA to implement appropriate measures.
To mitigate the concerns raised, the requirement was revised to apply only to financial services providers and representatives contracted to the CIS manager.
Proposed prospectus
Support for the proposed prospectus was expressed, but commentators cautioned against duplicating detailed portfolio information already in Minimum Disclosure Documents (MDDs), which could lead to excessive repetition. Requests were made to exclude certain information because of the proposed 60-page limit. Suggestions included incorporating prospectus requirements into a future Conduct Standard on Advertising, Marketing, and Information Disclosure for Collective Investment Schemes.
The FSCA acknowledged the concerns and removed some requirements, inserting an enabling provision to determine prospectus details separately. A prospectus must be detailed and contain static information, whereas an MDD provides high-level and portfolio specific information. Duplication can be minimised by, for example, by having an MDD as an annexure to the prospectus.
The draft Standard is an interim measure, and a future Standard will detail the requirements for the prospectus.
Custody
It was questioned why the Standard duplicated the requirements for managers regarding trustees and custodians, which are already covered in Conduct Standard 2 of 2020 (CIS). The term “fiduciary” was challenged, and concerns were raised about managers conducting due diligence on sub-custodians, because relationships lie with trustees/custodians.
The FSCA removed the requirements for managers in this context because Conduct Standard 2 of 2020 suffices. The term “fiduciary” was deleted. Obligations were rephrased: a manager must ensure trustees/custodians conduct a due diligence on the sub-custodian and share it with the manager to enable it to assess the appropriateness of the appointment.
Notification occasioned by liquidity constraints
Submissions indicated that notifications for liquidity constraints must be used cautiously to avoid causing a run on portfolios, suggesting they apply only to material constraints.
The FSCA acknowledged the potential issues but retained the requirement in the interest of investor protection
Keep provisions of the final Conduct Standard
The main elements of the Standard are summarised below.
Scope and proportionality
The Standard applies to all CIS managers, except managers of participation bond schemes. The Standard expressly allows application “in a manner that is proportionate to the nature, size, scale and complexity of the manager”, while acknowledging that certain requirements may not accommodate proportionality.
Business principles and governance
The Standard requires that: “A manager must at all times – (a) act in good faith and treat investors fairly; (b) conduct its business transparently and with integrity.” The governing body of the manager is made explicitly accountable for compliance and for establishing effective governance arrangements that are appropriate to the manager’s size and complexity.
The Standard requires documented roles and responsibilities, oversight by the governing body, and clear reporting lines from control functions to the governing body.
Control functions: risk, compliance, and internal audit
The Standard requires the establishment and maintenance of an effective risk management framework, a dedicated compliance function, and an internal audit function. Each control function must be appropriately resourced and have a designated head.
Notably, the Standard requires FSCA notification and (in the case of the head of compliance) FSCA approval of certain appointments, and it sets out notification obligations relating to intended terminations and outsourcing of control functions.
The Standard ties risk management to specific processes (strategy, appetite, stress testing, monitoring) and requires managers to address conduct risk in particular.
Conflicts of interest
Managers are required to take “all appropriate steps to identify actual or potential conflicts of interest” and to adopt a conflicts-of-interest management policy that is approved by the governing body and reviewed at least annually. The policy must provide for “the effective identification, avoidance, management, and disclosure of conflicts of interest”, set out processes and internal controls, and specify consequences for non-compliance. Where conflicts cannot be avoided, they must be disclosed to investors in accordance with the Standard.
Portfolio development and product governance
A central innovation in the Standard is the mandatory portfolio development framework. For each new portfolio (and for material changes to existing portfolios), managers must document the product design process, define the intended target market, set the investment objectives and permitted instruments, define the distribution strategy, and put in place approval, monitoring and periodic review arrangements.
The Standard requires managers to consider distribution-related conduct risks (including frequent switching or “churning” by distributors) and to adopt a methodology to detect and respond to such practices.
Prospectus and disclosure
The Standard requires managers to produce and maintain a prospectus for the scheme and for each portfolio; the prospectus must be made available to investors (for example, by website or at the manager’s registered address).
The Statement of Need explains that a standardised prospectus is intended to improve clarity and comparability of CIS offerings and to align disclosure with international best practice.
The Standard’s prospectus requirements include information on portfolio objectives and strategies, service-provider listings, risk analysis, liquidity management tools, material fee disclosures, and the complaints resolution framework.
Trustees, custodians, and sub-custodians
The Standard strengthens expectations around trustees and custodians. Managers must perform due diligence and ongoing oversight of trustees’ custody arrangements, including any appointment of sub-custodians, and must take steps to satisfy themselves of the fitness and capability of custody providers.
Notifications of material events and investor rights
Annexure A to the Standard sets out a table of specified “material events”, the notification periods that apply, and in some cases the conditions for investor remedies.
For example, where a change to an investment objective or policy is effected via deed amendment, the Standard requires that managers “notify investors of the outcome of the change/amendment within 10 business days of the change/amendment taking effect” and that “investors who did not agree with the proposed change/amendment must be provided with the option of switching or redeeming at no additional cost”.
The Annexure enumerates a range of events (manager or investment-manager changes, material fee changes, valuation or pricing policy changes, suspensions, terminations, and others) and prescribes timeframes for notification and, where applicable, free exit rights.
Trade execution, related-party transactions and miscellaneous provisions
The Standard imposes an explicit best-execution obligation: managers must take reasonable steps to achieve the best possible result for the portfolio when executing trades.
Related-party investment and transactions are tightly constrained; managers may not invest scheme assets in the manager or related parties except where consistent with the portfolio policy and under trustee oversight, and certain transactions (such as purchasing real estate from a manager or related party for inclusion in the fund) are explicitly prohibited.
