CFCL Investment regulation – South Africa
Reference
Regulatory structure
Please refer to the CBL Market infrastructure - South Africa for the complete information about the regulatory structure.
Holding restrictions
Disclaimer
The information contained in the Holding Restrictions is based on the legal opinion obtained by CBL that was issued 6 September 2021. CFCL believes the information to be correct as of that date but disclaims any responsibility as to the accuracy and completeness of the information after that date. In the case of discrepancy between the information provided by CFCL and the local laws and regulations, the latter shall prevail. The Holding Restrictions do not constitute legal advice and Clients should seek advice from independent professional counsel.
Clients are responsible for ensuring compliance with the holding restrictions and agree to indemnify and hold harmless, CFCL, for any loss, expense, liability, damage, or claims, whether direct or indirect, against or incurred by CFCL arising out of or resulting from such non-compliance.
Holding restrictions – Register Market - South Africa
Restrictions on clients
No general restrictions on client residency for holdings held through CFCL. However, certain funds may impose specific restrictions on investor domicile. Clients must refer to and abide by the restrictions (if any) contained in the fund prospectus before entering into transactions.
Restrictions on settlement
There is no general restriction on settlement on South Africa investment funds through CFCL. However, certain funds may impose specific settlement/transfer restrictions. Clients must refer to and abide by the restrictions (if any) contained in the fund prospectus before entering into transactions.
Holding restrictions – CSD Market - South Africa
Please refer to Investment regulation - South Africa for complete information on holding restrictions for South Africa.
Disclosure requirements
Introductory information and categories
This section provides general information about the disclosure requirements for fund securities holdings with which Clearstream Fund Centre must, according to the information available at the time of the present publication, comply with each of the domestic markets and fund markets covered by the Disclosure Requirements.
Fund securities that are held remotely are usually not disclosed by CFCL. A disclosure request received by CFCL regarding such a holding will be forwarded to the relevant client without assessing its validity and the CFCL Client shall handle the request on a voluntary basis.
Disclosure Requirements are only available for those countries where CFCL has a link to the respective domestic market or direct access to local domiciled funds that are held in Clearstream’s name on the register.
For fund securities holdings where CFCL has no such link or direct access to the register, clients must be aware that local laws might provide for mandatory disclosure. A disclosure request in this regard will be forwarded to clients without assessing its validity. Clients commit not to unreasonably withhold their consent to such a request and agree to indemnify CFCL for damages resulting directly from non-compliance with mandatory local disclosure requirements.
In most cases, the obligation to disclose is based on the domestic equivalent of a Companies Act, relevant investment funds act or anti-money laundering act and covers all security types.
In some instances, the obligation to disclose is based on stock exchange laws or regulations and only applies to listed domestic and foreign securities.
The Disclosure Requirements do not constitute legal advice and the Clients should seek independent professional advice in relation to fund securities deposited with CFCL, especially as, for those jurisdictions in which no disclosure obligation falls on CFCL, there may be separate disclosure requirements that apply directly to clients of CFCL, shareholders and beneficial owners.
Please note that CFCL is not always given comprehensive information or advised of changes affecting local disclosure requirements.
It remains the sole responsibility of the Client to ensure compliance with local disclosure requirements. If a requirement is not met, it is the Client who will be liable to any related penalty. Clients are therefore advised to seek independent legal advice on the existence and interpretation of local disclosure requirements.
In the case of a discrepancy between the general information contained in this document and the information provided by CFCL for a specific market, as applicable (irrespective of whether this information has been obtained from an agent of Clearstream Fund Centre, or, as the case may be, a foreign regulator of a branch of CFCL), the information provided by CFCL for the specific market as applicable, shall prevail.
N.B.: In all countries, if it is suspected that a disclosure obligation has been breached (for example, that a threshold of holdings under custody has been crossed without being reported), the regulators and the authorities may have the power to investigate. Moreover, in all countries, disclosure obligations might be triggered by enforceable judgements of the competent jurisdiction of the country in question.
Disclosure categories
Category 1
Markets where disclosure by Clearstream Banking as a custodian of Clearstream Fund Centre to issuers, investment fund managers and/or to regulators or market authorities is mandatory under applicable law;
Category 2
Markets where disclosure by Clearstream Banking as a custodian of Clearstream Fund Centre of account holders to issuers, investment fund managers and/or foreign regulators or market authorities is a legal obligation in respect of securities in specific circumstances;
Category 3
Markets where there is no obligation for Clearstream Banking as custodian of Clearstream Fund Centre to disclose account holders to issuers, investment fund managers and/or regulators, notwithstanding any disclosure requirement falling directly on clients of Clearstream Fund Centre, shareholders and/or beneficial owners or notwithstanding disclosure necessary to obey an enforceable judgement of the country in question.
Disclosure requirements – Register Market - South Africa
Disclosure Category: 1
Clearstream Fund Centre (“CFCL”) may fall under an obligation to disclose the identity and holdings of clients and/or ultimate beneficial owners in the case of holding investment funds in South Africa.
Consent
In order to comply with the applicable legislation, clients with holdings in South African domiciled investment funds or entering into transactions in the South African market must consent and are hereby deemed to consent to the required legal disclosure. Such consent includes the appointment of the requestor (for example, the Fund Manager, Transfer Agent, Regulator) as their attorney-in-fact, under power of attorney, to collect from CFCL the required information to be disclosed. Clients who do not grant such authority cannot hold such investment funds or financial instruments in their accounts with CFCL.
Background and legal basis
In terms of the Financial Intelligence Centre Act, 2011 (FICA), an accountable institution (which includes a manager of a CIS as well as a licensed FSP) is required to establish and verify the identity of the person on whose behalf a client is acting before entering into a relationship with such person. Section 21 of FICA provides that where the client of an accountable institution acts on behalf of another person, the accountable institution is required to establish and verify the identity of that other person as well as the client’s authority to establish the business relationship or to conclude the single transaction on behalf of that other person.
Sanctions
Non-compliance with the request for information on CFCL’s clients and the ultimate beneficial owners of the participatory interests in the funds will result in the manager being unable to allow the investor to invest in the fund.
The client undertakes to hold CFCL harmless and to indemnify CFCL from any loss, claim, liability or expense asserted against or imposed upon CFCL as a result of the customer failure, whatever the failure, to comply with these disclosure requests.
Disclosure requirements – CSD Market - South Africa
Disclosure Category: 1
In the case of holdings in securities listed in South Africa (including foreign securities) and in financial instruments that are convertible into listed securities, Clearstream Fund Centre S.A. (“CFCL”), is under obligation, under section 56 of the Companies Act 2008 ("the Companies Act"), as amended, to disclose the identity and holdings of its clients holding applicable positions.
Consent
In order to comply with the legislation as mentioned above, clients entering into transactions in the South African market are hereby deemed to consent to disclosure and to the appointment of the requestor (for example, the issuer or its agent) as their attorney-in-fact, under power of attorney, to collect from Clearstream Fund Centre such information as is required to be disclosed.
Disclosure requirements
Clients are advised that local laws and regulations (including the Companies Act) may require Clearstream Fund Centre to disclose securities holding information and the identity of its clients.
Background and legal basis
Section 56 of the Companies Act gives an issuer the power to investigate ownership of its securities.
A written notice is sent by the issuer to any person that holds the securities or that held the securities during the three years preceding the date of the notice. The notice is addressed to the person whose name appears in the shares register or the person the issuer knows or has reasonable cause to believe to have a beneficial interest in the securities issued by that issuer. The issuer can request that the final beneficial owner be revealed.
The South African market recognises the nominee concept and South African securities held by clients of CFCL are registered in the name of Clearstream Fund Centre or Standard Chartered Nominees SA (Pty) Ltd if it is a physical security. The Companies Act gives the issuer the right to require disclosure down to the level of the final beneficial owner.
Sanctions
Non-compliance with section 56 of the Companies Act is considered as an offence. Persons failing to comply shall be subject to a fine or imprisonment for up two years or both.
Obligation to report threshold crossings
In terms of section 56 of the Companies Act, if a security of a public company is registered in the name of a person who is not the holder of the beneficial interest in all the securities in the same company held by that person, that registered holder of security must disclose:
- the identity of the person on whose behalf that security is held; and
- the identity of each person with a beneficial interest in the securities so held, the number and class of securities held for each such person with a beneficial interest, and the extent of each such beneficial interest.
The information required in terms of 1. and 2. above must:
- be disclosed in writing to the company within five business days after the end of every month during which a change has occurred in such information, or more promptly or frequently to the extent so provided by the requirements of a central securities depository; and
- otherwise be provided on payment of a prescribed fee charged by the registered holder of securities.
The Companies Act further provides that a company that knows or has reasonable cause to believe that any of its securities are held by one person for the beneficial interest of another, by notice in writing, may require either of those persons to:
- confirm or deny that fact;
- provide particulars of the extent of the beneficial interest held during the three years preceding the date of the notice; and
- disclose the identity of each person with a beneficial interest in the securities held by that person.
The above information must be provided not later than 10 business days after receipt of the notice.
A company that falls within the meaning of “regulated company” as set out in section 117(1)(i) of the Companies Act is obligated in terms of the Companies Act to
- establish and maintain a register of the disclosures made in terms of section 56 of the Companies Act; and
- publish in its annual financial statements, if it is required to have such statements audited in terms of section 30(2) of the Companies Act, a list of the persons who hold beneficial interests equal to or in excess of 5% of the total number of securities of that class issued by the company, together with the extent of those beneficial interests.
In terms of section 122 of the Companies Act a person must notify a regulated company in the prescribed manner and form within three business days after that person:
- acquires a beneficial interest in sufficient securities of a class issued by that company such that, as a result of the acquisition, the person holds a beneficial interest in securities amounting to 5%, 10%, 15%, or any further whole multiple of 5%, of the issued securities of that class; or
- disposes of a beneficial interest in sufficient securities of a class issued by a company such that, as a result of the disposition, the person no longer holds a beneficial interest in securities amounting to a particular multiple of 5% of the issued securities of that class.
The requirements set out directly above apply to a person irrespective of whether:
- the person acquires or disposes of any securities
• directly or indirectly; or
• individually, or in concert with any other person or persons, or - the stipulated percentage of issued securities is held by that person alone, or in aggregate by that person together with any
• related or inter-related person; and
• person who has acted in concert with any other person.
In terms of the Financial Markets Act, the depository rules will provide for participants to disclose to the CSD their clients' details as per their CSDP records. However, the Companies Act provides the Issuer (not the SA regulator) certain powers to request disclosure from clients and that includes foreign nominees.
Stamp duty and capital gains tax
The South African Tax Authorities organise the Securities Transfer Tax (STT) and Capital Gains Tax (CGT), which is charged to the beneficial owner via the custodian (Standard Chartered Bank Johannesburg Branch) and Clearstream Fund Centre, if applicable.
The South African Tax Authorities may question or make inquiries in relation to any details of a transaction, including the eligibility for exemption.
By holding equities issued in South Africa in an account with Clearstream Fund Centre, clients are deemed to have authorised disclosure to the South African Tax Authorities, upon request, of all details of transactions relating to such equities.
Disclaimer
The information contained in the Disclosure Requirements is based on the legal opinion obtained by CBL acting as a sub-custodian for CFCL that was issued on 6 September 2021. CFCL believes the information to be correct as of that date but disclaims any responsibility as to the accuracy and completeness of the information after that date. In the case of discrepancy between the information provided by CFCL and the local laws and regulations, the latter shall prevail. The Disclosure Requirements do not constitute legal advice and Clients should seek advice from independent professional counsel.
Clients are responsible for ensuring compliance with the disclosure requirements and agree to indemnify and hold harmless, CFCL, for any loss, expense, liability, damage or claims, whether direct or indirect, against or incurred by CFCL arising out of or resulting from such non-compliance.