The South African financial market is experiencing significant volatility due to COVID-19, which has impacted on liquidity in certain portfolios. The Collective Investment Schemes Control Act (CISCA), in its current form, does not allow for mechanisms or tools to deal with the current market conditions. The FSCA have therefore decided to grant an exemption to managers of collective investment schemes from complying with certain requirements relating to the administration of portfolios.
The exemption published in FSCA CIS Notice 2 of 2020, is aimed at mitigating the liquidity pressures that might be experienced by collective investment scheme portfolios in the current environment which could pose risk to the financial system. The exemption which is subject to conditions, will allow managers to suspend the creation, issue, sale and repurchase of participatory interests in a portfolio, only in circumstances where a manager is unable to reasonably liquidate sufficient assets held by the particular portfolio, and in a manner that is not prejudicial to remaining investors, in order to meet its ordinary obligation to repurchase participatory interests in that portfolio when offered to it in terms of a daily valuation point. One of the conditions of the exemption is that there must be prior consent by the CIS manager’s trustee/custodian and the CIS manager must also inform the FSCA of this consent before the suspension takes effect.
Although the exemption applies to CIS Managers, advisors should be aware of the implications.