The Financial Sector Conduct Authority (FSCA) has published Conduct Standard 3 of 2025 (CIS), titled Requirements for Managers of Collective Investment Schemes (the Conduct Standard), together with a Statement of Need and Impact and a Consultation Report. The Conduct Standard was published on 14 August 2025 and will come into effect 12 months after the date of publication (ie on 15 August 2026).

Background and purpose

The Conduct Standard prescribes requirements for managers of collective investment schemes and aims to update and enhance the outdated regulatory framework currently applicable to managers of collective investment schemes. The Conduct Standard addresses recommendations made by the International Monetary Fund (IMF) following South Africa's Financial Sector Assessment Programme (FSAP), conducted during 2020 and 2021, with the final FSAP Report issued on 21 January 2022.

The Conduct Standard is an interim measure pending the implementation of a holistic conduct regulatory framework applicable to all financial institutions under the envisaged Conduct of Financial Institutions (COFI) Bill.

Key provisions summary

The Conduct Standard introduces comprehensive requirements across several critical areas:

1. Business principles and governance

Managers must always act in good faith, treat investors fairly, and conduct business transparently and with integrity. Managers must establish, document, implement, monitor and continually review the effectiveness of governance arrangements necessary to ensure compliance with the Act and relevant conduct standards.

2. Control functions

The Conduct Standard establishes mandatory requirements for three key control functions:

Risk management function

• Managers must document, establish and implement an appropriate, efficient and effective risk management framework consisting of strategy, policies, procedures, and tools for identifying, assessing, monitoring, reporting, and mitigating risks, including conduct risk.

• They must implement appropriate liquidity risk management measures, including stress and scenario testing on a periodic basis.

Compliance function

• Managers must establish, implement and maintain a clear and documented compliance risk management framework with adequate policies and procedures to detect and manage compliance risk effectively.

• The compliance function must operate independently with the necessary authority, resources, expertise, and access to all relevant information.

Internal audit function

• Managers must establish and maintain an internal audit function that is separate and independent from day-to-day functions and operational activities.

• The function must establish, implement, and maintain an audit plan to examine and evaluate the adequacy and effectiveness of accounting systems, internal control mechanisms and governance arrangements.

3. Conflicts of interest management

Managers must take all appropriate steps to identify actual or potential conflicts of interest between the manager, key persons, staff members, significant owners, related parties, or business arrangement parties and the interests of investors. Managers must avoid conflicts where possible, or if avoidance is not reasonably possible, manage and mitigate conflicts while clearly disclosing the nature and source to investors.

4. Portfolio development framework

Managers must establish, maintain and operate an adequate and effective portfolio development framework with appropriate systems and controls to design, approve, market, distribute, manage, review and report on portfolios. Key requirements include:

• Specification of an identified target market for each portfolio, assessment of all relevant risks to the target market, and ensuring distribution strategy consistency with the identified target market.
• Appropriate senior manager or committee approval in writing for new portfolios or material amendments before submission to the FSCA or commencement of marketing.

5. Prospectus requirements

Managers must have a prospectus for all approved collective investment schemes and portfolios. The prospectus must be provided to every new investor prior to the conclusion of the investment transaction. It must provide a holistic and transparent view of the collective investment scheme and all approved portfolios, disclose all relevant material matters, and indicate which reports investors are entitled to receive.

6. Material event notifications

The Conduct Standard includes a comprehensive table of material events requiring investor notification, with specific notification periods and conditions. Examples include:

• Changes to investment objectives/policies: within 10 business days after the change takes effect.
• Fee changes: at least three months before the change takes effect.
• Manager changes: at least 30 business days before the change takes effect.
• Material pricing errors: within 5 business days of identification.

7. Trade execution and related party transactions

Managers must have arrangements to take all reasonable steps to obtain the best possible outcome for investors when buying and selling assets, ensuring all trades are executed on a best-execution basis. Managers may not invest portfolio funds in their own securities or those of related companies unless the securities are constituents of the portfolio's approved investment policy or reference benchmark.

Proportionate application

The Conduct Standard may be applied proportionately to the nature, size, scale and complexity of the manager, considering its business and operating model, scope of activities, investor profile, and associated level of risk exposure. Managers may outsource control functions or heads of control functions where appropriate, given their circumstances.

Expected impact

The Conduct Standard is expected to ensure the South African CIS regulatory environment is more closely aligned to international standards, thereby improving confidence in the South African market and ensuring better protection and outcomes for financial customers.

Industry feedback during consultation indicated varying cost implications. Some larger firms expect manageable costs due to existing governance structures, while others estimate additional costs of approximately ZAR 1-million per annum. Key cost areas identified include the establishment of internal audit functions, investor notifications, and prospectus drafting. However, the FSCA noted that these concerns are substantially mitigated through the proportionate application provisions.

Next steps for CIS managers

Given the 12-month implementation period, CIS managers should:

1. Conduct gap analyses against current practices and the new requirements.
2. Assess control function arrangements and determine whether internal establishment or outsourcing is appropriate.
3. Review and update governance frameworks to align with the new business principles and governance requirements.
4. Develop or enhance conflicts of interest management policies.
5. Establish portfolio development frameworks if not already in place.
6. Prepare prospectuses for all collective investment schemes and portfolios.
7. Review notification procedures for material events.
8. Assess trade execution arrangements and related party transaction policies.

This alert provides a high-level summary of key provisions. Managers should review the full Conduct Standard and seek specific legal advice regarding their compliance obligations.

Written by Kent Davis & Dawid de Villiers, Partners at Webber Wentzel