On 14 August 2025, the Financial Sector Conduct Authority (FSCA) officially published Conduct Standard 3 of 2025 (CIS), a landmark regulatory instrument aimed at enhancing the governance, transparency, and operational integrity of Managers of Collective Investment Schemes (CIS). This publication marks a significant step in aligning South Africa’s financial sector with international best practices, particularly those outlined by the International Organisation of Securities Commissions (IOSCO) and recommendations from the International Monetary Fund (IMF).
The Conduct Standard is accompanied by a Statement of Need and Impact, which outlines the rationale and expected outcomes of the new requirements, and a Consultation Report, reflecting stakeholder engagement during the drafting process. Together, these documents form a comprehensive framework for reforming the CIS regulatory environment.
Purpose and context
The Conduct Standard was developed under section 106(1) of the Financial Sector Regulation Act, 2017, and is intended to modernise the outdated regulatory framework governing CIS managers. It supports the FSCA’s mandate to promote fair treatment of financial customers and ensure better outcomes through improved governance and risk management practices.
The need for reform was underscored by findings from the IMF’s Financial Sector Assessment Program (FSAP) conducted in 2020–2021. The FSAP report, published in January 2022, identified several gaps in South Africa’s CIS regulatory framework, including:
- Lack of product governance requirements
- Insufficient clarity between the roles of CIS managers and distributors
- Absence of standardised prospectuses
- Weak oversight of custodians and sub-custodians
- Inadequate conflict of interest frameworks
- Undefined material changes requiring investor notification
Key provisions of the Conduct Standard
The Conduct Standard, which applies to all CIS managers excluding those managing participation bonds, introduces a wide range of requirements across several domains:
- Governance and control functions: CIS managers must establish robust governance arrangements, including risk management, compliance, and internal audit functions. Heads of these functions must be appointed and meet specific competency and independence criteria.
- Conflicts of interest: Managers are required to identify, avoid, and manage conflicts of interest through a formal policy, with annual reviews and staff training.
- Portfolio development: A portfolio development framework must be implemented, covering design, approval, distribution, and monitoring. Portfolios must be aligned with target markets and investor needs.
- Prospectus requirements: Each CIS must have a prospectus that provides transparent, static information about the scheme and its portfolios (excluding performance data).
- Custody oversight: Managers must ensure proper due diligence and ongoing oversight of sub-custodians appointed by trustees or custodians.
- Material event notifications: A detailed table in the Standard outlines events requiring investor notification, such as changes in fees, investment policies, or management structures, with specified timelines and conditions.
Implementation timeline and impact
The Conduct Standard will come into effect 12 months after its publication, 14 August 2026. It applies to all CIS managers and the schemes and portfolios they oversee, excluding those managing participation bonds.
The FSCA acknowledges that the new requirements may have cost implications, particularly for smaller managers. However, the Standard allows for proportional application, enabling managers to tailor compliance based on their size, complexity, and risk exposure. Exemptions may be granted where justified.
Stakeholder feedback during the consultation process revealed mixed views on the cost impact. While some firms anticipate minimal disruption due to existing governance structures, others foresee increased operational and compliance costs, especially related to internal audit functions and investor notifications.
Conclusion
The publication of Conduct Standard 3 of 2025 represents a pivotal moment in the evolution of South Africa’s CIS regulatory landscape. By addressing critical gaps identified in international assessments and aligning with global standards, the FSCA aims to bolster investor confidence, enhance market integrity, and ensure fair outcomes for financial customers.
As the industry prepares for implementation by August 2026, CIS managers must begin assessing their current practices and frameworks to ensure timely compliance. The FSCA remains committed to supporting this transition and fostering a resilient, transparent, and customer-centric investment environment.