Foreign funds in focus: Navigating the new section 65 draft determination
The Financial Sector Conduct Authority (FSCA) recently issued Communication 1 of 2026, announcing that a draft determination relating to foreign collective investment schemes (CIS’s) has been submitted to Parliament.
For years, the industry has relied on Board Notice (BN) 257 of 2013 to dictate how foreign funds operate locally. However, the regulatory landscape is shifting from a predominantly rules-based approach to a principles-based one. Furthermore, the recent Financial Services Tribunal (FST) decision in Greenman Investments S.C.A. Sicav-Fis v FSCA necessitated a complete review of BN 257, confirming the FSCA's limited discretion to categorize foreign CIS’s.
What is Changing?
While the application format for a section 65(1) approval remains largely unchanged, the draft determination proposes to expand the ongoing conditions that foreign schemes must satisfy to ensure better protection for South African investors.
Here are the key regulatory shifts you need to know:
Risk profile comparisons: The investments that a foreign CIS proposes to offer in South Africa must not have a significantly higher risk profile compared to similar investments offered by local CISCA-registered managers.
Strict investment strategy limits: A foreign CIS may not utilize uncovered short selling on behalf of its scheme.
Synthetic exposure bans and exceptions: The use of a synthetic portfolio or exchange-traded fund that creates synthetic exposure is strictly prohibited. However, there is an exception: this ban does not apply if the portfolio or fund is only promoted to investors who are not "qualified investors" as defined in BN 52 of 2015.
Pre-approval naming and perception restrictions: Prior to formal section 65 approval, a foreign CIS cannot reference an approved scheme in its business name without explicit FSCA consent, nor can it act in any way that leads the public to believe it is authorised to solicit investments.
Responsible lending and liquidity: The foreign CIS must not lend or advance money outside of strictly defined limits determined in their founding documents and must guarantee that the liquidity of its securities will not compromise its overall liquidity terms.
Responsible management and public interest: The manager must organise and control the foreign CIS responsibly. Furthermore, the solicitation of investments cannot be contrary to the interests of the public, the financial sector or potential investors.
What this means for you
If you are a Financial Services Provider (FSP) or a Key Individual (KI) advising on foreign collective investment schemes, you need to prepare for a stronger and more appropriate regulatory framework governing the advertisement and solicitation of these schemes.
The FSCA envisages that the cost implications of the draft determination will not be significant, as it largely builds upon existing BN 257 requirements. However, the operational and compliance scrutiny will undoubtedly be higher.
Implications:
Enhanced due diligence: FSP’s must ask tougher questions when vetting foreign funds. You need to ensure offshore partners align with South African risk profiles and are not relying on prohibited strategies like uncovered short selling.
Marketing oversight: Keep a close eye on the promotional materials of your foreign partners to ensure they do not mislead the public about their authorisation status prior to official approval.
Transitional awareness: Applications submitted before the commencement of the draft determination will still be evaluated based on the old BN 257.
What now?
The draft determination is proposed to come into effect only on the date of publication once it has been finalised by Parliament. We will keep our clients updated on the draft’s finalisation and any practical implications for their operations.
