Not all investments are created equal
The role of regulation in protecting South African investors
By Enrico February, Chief Operating Officer, OIG
August 2025
The South African investment universe offers several investment vehicles, all of which cater to a range of investor needs. While there are numerous ways with which to bucket and distinguish between what is available, this article will focus on the regulatory side.
In South Africa, investments fall into two broad categories: regulated and unregulated. Before we dive in, it’s important to clarify that this distinction doesn’t imply that one is inherently better or worse than the other. Rather, this article aims to highlight the importance of understanding the difference – and the varying levels of investor protection and risk associated with each – when considering where to invest. In addition, we’ll also briefly touch on the advantages and disadvantages of each.
South Africa’s regulated investments have various watchdogs aimed at protecting investors
“Trust is fundamental to any financial system’s effectiveness and existence… To counteract this, we must adopt a regulatory framework that is as dynamic and proactive as the financial sector itself… ensuring transparency and enhancing public understanding and engagement in financial regulation.” – South Africa’s Finance Minister, Enoch Godongwana.[1]
Regulated investment vehicles are governed by the Collective Investment Schemes Control Act (CISCA). Introduced in 2002, CISCA and the applicable Board Notices aim to regulate and control the establishment and administration of collective investment schemes (CIS), also known as unit trusts.
A Collective Investment Scheme (CIS) is a regulated investment vehicle where investors pool their funds to be professionally managed, offering diversification, transparency, and investor protection under a structured framework.
CISCA is enforced by the Registrar of Collective Investment Schemes, a role held by the Head of the Financial Sector Conduct Authority (FSCA) – South Africa’s regulatory body responsible for market conduct and investor protection.
The FSCA’s primary role is to promote the fair treatment of financial customers and maintain the integrity of financial markets in South Africa.2
Financial Service Providers (FSPs) regulated by the FSCA include asset managers, financial advisors, banks, insurers and administrators, to name a few.
One of the key pillars of regulated investment vehicles is that their asset managers must be licensed under the Financial Advisory and Intermediary Services (FAIS) Act. FAIS plays a vital role in safeguarding investors by regulating the provision of financial advice and intermediary services. It ensures that Financial Service Providers (FSPs) are appropriately licensed, that their representatives meet qualification and competency requirements, and that they adhere to a defined code of conduct. The Act also establishes formal mechanisms for enforcement and investor complaints, thereby promoting accountability and professionalism across the financial services industry.
What about unregulated investments?
Unregulated investment vehicles do not follow the same regulatory approach to investments; are not governed by CISCA, and therefore do not offer the same level of protection. These investments typically tilt toward the private sector, alternative and unlisted instruments/vehicles.
Investment vehicles that are not regulated include private equity investments, private equity real estate (including fixed property investing), infrastructure investing, mezzanine capital, venture capital funds, and unregulated hedge funds (typically in partnership structures).
Managers of unregulated investment vehicles are not subject to the Financial Advisory and Intermediary Services (FAIS) Act, meaning they operate outside the oversight of the Financial Sector Conduct Authority (FSCA). As a result, investors in these vehicles have limited protection, and there is no formal recourse or regulatory body to handle disputes or complaints should issues arise.
One goal in mind – Oversight
There are a few key parties involved in the structure of a CIS, each with various responsibilities; however, all have the same goal in mind – oversight.
- A trustee or custodian (typically a bank) is mandated (under CISCA) to oversee the asset manager’s investments independently to safeguard them from mismanagement or insolvency, with powers to intervene if irregularities occur.
- The management company, licensed under CISCA, must maintain minimum capital adequacy, comply with risk management policies, report regularly to the FSCA, and review its operations and deed compliance.
- Linked Investment Service Providers (LISPs), known as platforms, are used to access CISs and are also regulated under FAIS and CISCA. Platforms are subject to rigorous reporting obligations to the FSCA. Platforms are unlikely to host unregulated vehicles due to the lack of transparency as well uncertainty of valuation principles applied.
- The FSCA supervises each level of the investment process through registration, audits, and reporting.
Compliance with all rules and regulations is enforced via fines or debarring non-compliant individuals/entities. Trustees, such as banks, can also reimburse clients for losses due to irresponsible practices, like fraud or breaches, using segregated trust assets or insurance, through an FSCA-directed restitution process.
The lack of oversight by the FSCA on unregulated investment products carries higher risks of fraud or mismanagement and offers limited recourse for investors.
Reporting and relying on well-documented paper trials
One of the key aspects of the abovementioned regulations is their provision for investor protection by safeguarding investment activities through their rigorous criteria and reporting obligations.
Regulated investment vehicles have strict reporting requirements, such as quarterly reporting to the Registrar, disclosing the full investment holdings of each CIS administered by the Manager.
Platforms provide monthly reporting to investors that details their assets held, fees, terms and conditions.
Both regulated and unregulated investment vehicles come with their own set of advantages and risks.
While the term “unregulated” may sound inherently negative, that’s not necessarily the case. The suitability of an unregulated investment depends on your personal investment goals, your confidence in the specific vehicle or manager, and your willingness to accept a level of risk in pursuit of potential returns.
Collective Investment Schemes (CIS) offer transparency, regulatory oversight, and investor protection through established bodies like the FSCA. Investors benefit from clear disclosures, recourse mechanisms in cases of misconduct, and typically high liquidity – with most CIS offering daily access to funds. However, this strong regulatory framework and risk management often result in more moderate returns compared to unregulated alternatives.
Unregulated investment vehicles, on the other hand, present the potential for higher returns, particularly through exposure to private equity and niche opportunities outside traditional markets. But these come at a cost: limited transparency, reduced liquidity, and a far greater risk of capital loss – often with no formal channels for investor recourse. Ultimately, the right choice depends on an investor’s goals, risk tolerance, and understanding of the trade-offs involved.
If it sounds too good to be true – it usually is…
In South Africa, the advertising and promotion of regulated financial products are strictly governed by legislation, including the Financial Advisory and Intermediary Services (FAIS) Act, CISCA, and applicable Board Notices issued by the FSCA. These rules are in place to ensure that all marketing is clear, fair, and not misleading, with the primary aim of protecting investors.
In contrast, unregulated investment products are not subject to the same oversight, which means they can be marketed with fewer restrictions.
The following five examples of rules that are in place and that are wise to remember when considering an investment that is being advertised –
- No unrealistic promises: Advertisements may not guarantee returns or suggest that capital is guaranteed unless this is contractually and legally true.
- Risk disclosures are mandatory: All promotional materials must clearly communicate the risks associated with the investment, including the possibility of capital loss.
- Past performance must be contextualised: If historical returns are shown, they must include disclaimers such as “past performance is not indicative of future results” and be presented over appropriate timeframes.
- Use of approved terminology: Specific terms like “unit trust” or “guaranteed” can only be used under defined regulatory meanings – avoiding language that could mislead investors.
- Balanced presentation: Marketing materials must present both benefits and risks fairly, without exaggerating the upside or minimising potential downsides.
And finally, never forget the age-old adage: “If it sounds too good to be true, it probably is.” If you’re presented with an investment promising minimal effort, maximum returns, and no risk, it’s a major red flag. In such cases, your best move is to walk away – quickly and confidently.
In closing
Investing in a CIS means placing your capital within a regulated environment backed by a robust legal and supervisory framework. Oversight by the Financial Sector Conduct Authority (FSCA), along with the licensing and regulation of Financial Service Providers (FSPs), helps ensure that transparency, integrity, and due care are upheld across every level of the investment process in South Africa.
However, regulation is only one part of the equation. It’s equally important for investors to conduct proper due diligence – understanding the nature of the product, the experience of the manager, and how the investment aligns with their personal goals and risk appetite.
Partnering with the right FSP within this regulated landscape not only offers critical investor protection but also lays the foundation for long-term financial wellness and future financial security.
[1] Source: www.gov.za “Minister Enoch Godongwana: Launch of Corporation for deposit Insurance” published 25 April 2024.
[2] Source: FSCA Regulatory Strategy 2025 – 2028.
Disclaimer
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