Notice 910 of 2010: Determination of Fit and Proper Requirements for Managers of Collective Investment Schemes

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# GENERAL NOTICES

## NOTICE 910 OF 2010

### FINANCIAL SERVICES BOARD

### COLLECTIVE INVESTMENT SCHEMES CONTROL ACT, 2002

#### Determination of Fit and Proper Requirements and Conditions for Managers of Collective Investment Schemes

Under sections 42 (read with sections 48, 51, 53,54, 64, 77 and 114(4)(b)) of the Collective Investment Schemes Control Act, 2002, I, Dube Phineas Tshidi, Registrar of Collective Investment Schemes, hereby determine the Fit and Proper Requirements and Conditions for Managers of Collective Investment Schemes as set out in the Schedule.

This Notice is called the Determination of Fit and Proper Requirements and Conditions for Managers of Collective Investment Schemes.

DP TSHIDI  
REGISTRAR OF COLLECTIVE INVESTMENT SCHEMES

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# SCHEDULE

## DETERMINATION OF FIT AND PROPER REQUIREMENTS AND CONDITIONS FOR MANAGERS OF COLLECTIVE INVESTMENT SCHEMES

### INDEX

- Part I DEFINITIONS
- Part II INTRODUCTION
- Part III REQUIREMENTS FOR APPOINTMENT OF BOARD OF DIRECTORS OF MANAGERS OF COLLECTIVE INVESTMENT SCHEMES
- Part IV FIT AND PROPER REQUIREMENTS FOR DIRECTORS
- Part V OPERATIONAL REQUIREMENTS FOR MANAGER
- Part VI FINANCIAL SOUNDNESS OF MANAGER
- Part VII MANAGEMENT AND SUPERVISION BY MANAGER
- Part VIII RISK MANAGEMENT BY THE MANAGER
- Part IX COMPLAINT RESOLUTION BY MANAGER
- Part X COMPLIANCE REPORT FOR MANAGERS
- Annexure A GENERAL INFORMATION ON COMPLETION OF QUESTIONNAIRES AS CONTAINED IN ANNEXURES B AND C
- Annexure B QUESTIONNAIRE TO BE COMPLETED IN RESPECT OF DIRECTORS
- Annexure C QUESTIONNAIRE TO BE COMPLETED IN RESPECT OF OUTGOING DIRECTOR

## INTRODUCTION

### PART I DEFINITIONS

1. In this Schedule-
   "the Act" means the Collective Investment Schemes Control Act, 2002 (Act No. 45 of 2002), and any word or expression to which a meaning has been assigned in the Act bears the meaning so assigned to it.

### PART II INTRODUCTION

2. (1) Any manager authorised in terms of the Act, to administer a collective investment scheme, is required to adhere to the Fit and Proper

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Requirements and Conditions for Managers of Collective Investment Schemes as determined in this Notice.

(2) Managers must complete Annexure B attached to this Notice in respect of its directors and submit it to the registrar within three months after publication of this Notice together with a written statement signed by the chairperson/managing director describing compliance/non-compliance with paragraphs 3, 4, 5, 6, 7, 8 and 9 of this Notice.

(3) Thereafter, managers must annually submit a written statement as prescribed in paragraph 10 of this Notice to the registrar.

(4) Where an application is made for registration as manager of a collective investment scheme as contemplated in section 42(1) (read with sections 48, 51, 53, 54, 64 and 77) of the Act, or for approval for a change in directors as contemplated in section 43(1)(a) of the Act, Annexure B must be completed by the applicant or manager with regard to its directors.

(5) If the appointment of a director of a manager is terminated for whatever reason the terminated director and public officer must complete Annexure C and submit it to the registrar within one month after termination of such appointment.

## PART III REQUIREMENTS FOR APPOINTMENT OF BOARD OF DIRECTORS OF MANAGERS

3. (1) The registrar hereby determines the following requirements for the board of directors of managers:
   (a) A minimum of four directors must be appointed as members of the board of directors of a manager (the number of directors to be appointed must be determined in the constituting documents of the company);
   (b) the executive directors must be resident in the Republic;
   (c) the non-executive directors must constitute at least 50% of the board of directors and the majority of the non-executive directors should be independent;
   (d) the board of directors must be informed on issues for which enlightenment is sought and at least two executive directors or senior management should attend meetings of the board of directors with a duty to inform members; and

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(e) the chairperson should preferably be a non-executive and need not necessarily be resident in the Republic. The chairperson will be required to sign statutory documents and must be available to do so.

(2) There must be sufficient collective investment schemes, legal and accounting experience and expertise amongst members of the board of directors. Each of the directors must be fit and proper and complete Annexure B together with the documents as required in terms of the said Annexure.

(3) Prior written approval of the registrar must be obtained for any change in directors. An application for such change must be provided to the registrar and accompanied by reasons for such change. Managers must complete Annexure B in respect of new directors and Annexure C in respect of outgoing directors.

## PART IV FIT AND PROPER REQUIREMENTS FOR DIRECTORS

4. Directors of a manager must satisfy the following fit and proper requirements:
   (a) A director must be a person who is honest and has integrity.
   (b) In determining whether a director complies with subparagraph (a), the registrar may refer to any information in possession of the registrar or brought to the registrar’s attention.
   (c) Without prejudice to the generality of subparagraphs (a), (b) and (d), any of the following factors constitutes prima facie evidence that a director does not qualify in terms of paragraph (a), namely if the director -
      (i) has within a period of five years preceding the date of application or the proposed date of appointment or approval, as the case may be, been found guilty in any criminal proceedings or liable in any civil proceedings by a court of law (whether in the Republic or elsewhere) of having acted fraudulently, dishonestly, unprofessionally, dishonourably or in breach of a fiduciary duty;
      (ii) has within a period of five years preceding the date of application or the proposed date of appointment or approval, as the case may be, been found guilty by any statutory professional body

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or voluntary professional body (whether in the Republic or elsewhere) recognised by the Financial Services Board, of an act of dishonesty, negligence, incompetence or mismanagement, sufficiently serious to impugn the honesty and integrity of the director;
   (iii) has within a period of five years preceding the date of application or the proposed date of appointment or approval, as the case may be, been denied membership of any body referred to in subparagraph (c)(ii) on account of an act of dishonesty, negligence, incompetence or mismanagement, sufficiently serious to impugn the honesty and integrity of the director;
   (iv) has within a period of five years preceding the date of application, or the proposed date of appointment or approval, as the case may be-
      (aa) been found guilty by any regulatory or supervisory body (whether in the Republic or elsewhere), recognised by the Financial Services Board; or
      (bb) had its authorisation to carry on business refused, suspended or withdrawn by any such body, on account of an act of dishonesty, negligence, incompetence or mismanagement sufficiently serious to impugn the honesty and integrity of the director; or
   (v) has at any time prior to the date of application, appointment or approval, as the case may be, been disqualified or prohibited by any court of law (whether in the Republic or elsewhere) from taking part in the management of any company or other statutorily created, recognised or regulated body, irrespective whether such disqualification has since been lifted or not.
   (d) A manager and director must in the application to the registrar, be candid and accurate and must of own accord disclose all facts or information at the disposal of, or which may be assessable to, the manager or director and which may be relevant for purposes of a decision by the registrar whether the director complies with subparagraph (a).

## PART V OPERATIONAL REQUIREMENTS FOR MANAGER

5. (1) A manager must have and be able to maintain the operational ability to fulfil the responsibilities imposed on it by the Act, including but not limited to the following:

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a) A principal office;
b) adequate storage and filing systems for the safe-keeping of records, business communications and correspondence;
c) adequate access to communication facilities including at least a full-time telephone or cell phone service, internet, typing and document duplication facilities; and
d) the necessary policies, procedures and systems to ensure full compliance with the Financial Intelligence Centre Act, 2001, and other applicable anti-money laundering or terrorist financing legislation.

(2) A manager that utilises any third party to render administrative or system functions on its behalf, must have in place a detailed service level agreement, specifying the agreed services, time, standards, roles and responsibilities and any penalties that might be applicable.

## PART VI FINANCIAL SOUNDNESS OF MANAGER

6. (1) A manager and its shareholder(s) must not be under liquidation or provisional liquidation.

(2) The assets of any shareholder (direct and/or indirect) of the manager as well as that of the manager must exceed the liabilities of the shareholder or manager, as the case may be. In addition, the manager must also comply with the capital requirements as determined in sections 4(3), 88 and 89 of the Act.

## PART VII MANAGEMENT AND SUPERVISION BY MANAGER

7. (1) A manager must comply with standards of internal organisation and operational conduct that aim to protect the interests of investors and ensure proper management of risk.

(2) A manager must conduct its business in a way that protects the interests of investors and helps preserve the integrity of the collective investment schemes industry.

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(3) A manager is responsible for ensuring appropriate internal policies and procedures for compliance with relevant legislation and appropriate internal controls and risk management systems. Senior management must understand the business, its internal control procedures and environment and its policies on the assumption of risk.

(4) A manager must ensure that internal control structures, procedures and controls are in place including inter alia:
   a) Documentation relating to business processes, policies and controls, and technical requirements;
   b) system application testing;
   c) disaster recovery and back-up procedures on electronic data;
   d) appropriate training for all staff regarding the requirements of relevant legislation; and
   e) a business continuity plan.

(5) A manager must record all financial and system procedures to ensure that the manager is able to report in terms of applicable accounting requirements.

(6) A manager must ensure that the necessary controls and compliance procedures are in place to manage and monitor the relevant system(s) in use.

(7) A manager must have general administration processing, accounting transactions and risk control measurements in place to ensure accurate, complete and timeous processing of data, information reporting and the assurance of data integrity.

## PART VIII RISK MANAGEMENT BY THE MANAGER

8. (1) The manager must execute periodic evaluation of risk management processes to ensure compliance with all relevant legislation. This must be conducted by an independent party, e.g. auditors or independent risk management consultants, so as not to compromise the evaluation.

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(2) A manager must at all times have and effectively employ resources, procedures and appropriate technological systems that can reasonably be expected to eliminate the risk that investors may suffer financial loss through theft, fraud, other dishonest acts, poor administration, negligence, professional misconduct or culpable omissions, and to protect the interests of investors in general.

## PART IX COMPLAINT RESOLUTION BY MANAGER

9. (1) For the purposes of this Part -
   'complaint' means a complaint submitted by an investor to a manager for purposes of resolution by the manager;
   'internal complaint resolution system procedures', in relation to a manager and an investor, means the system and procedures established and maintained by the manager in accordance with this paragraph for the resolution of complaints by investors; and
   'resolution' or 'internal resolution' in relation to a complaint and a manager means the process of resolving a complaint through and in accordance with the internal complaint resolution system.

(2) A manager must-
   (a) request that any investor who has a complaint against the manager must lodge such complaint in writing;
   (b) maintain record of complaints for a period of five years;
   (c) handle complaints from investors in a timely and fair manner;
   (d) take steps to investigate and respond promptly to complaints; and
   (e) where a complaint is not resolved to the investor’s satisfaction, advise the investor of any further steps which may be available to the investor in terms of any other law.

(3) A manager must maintain an internal complaint resolution system procedures based on the following:
   (a) Maintenance of a comprehensive complaints policy outlining the manager’s commitment to, and system and procedures for, internal resolution of complaints;