IN THIS ISSUE

Dear stakeholder

In October we celebrated ASISA’s 10th year of existence. ASISA was launched just two weeks after the global financial crisis reached its peak in September 2008, leaving a path of destruction, mainly across corporate US and Europe.

The timing could not have been better - never before had there been such an urgent need for the savings and investment industry to work together as one. If our industry had still been segmented by the time the global financial crisis started flushing inefficiencies and weaknesses out of financial services industries around the world, we would be operating in a very different environment today.

Ten years on and it is almost impossible to imagine our industry without a unified body. Many crucial milestones have been achieved over this period and many hurdles have been overcome.

With the ASISA strategy for 2019 reviewed and confirmed by the ASISA Board, we are looking forward to continue driving deliverables in support of our industry priorities, which are:

• Transformation;
• Inclusive economic growth and access; and
• Policy certainty.

Investment Conference

ASISA was represented by several of its Board members as well as senior policy advisers at President Cyril Ramaphosa’s Investment Conference, which took place under the theme “Accelerating Growth by Building Partnerships”.

This followed a dialogue organised in August by ASISA with Trevor Manuel and Trudi Makhaya in collaboration with the President’s Investment Mobilisation Programme (IMP) in preparation for the Investment Conference. The Conference formed part of the President’s drive to raise at least US$100 billion in new domestic and international investment over the next five years.

The overarching tone from Government was inclusive and receptive, making it clear that rebuilding the economy is an imperative. Addressing the Conference, President Ramaphosa said: “We are determined to put behind us the period of uncertainty and discord and embrace a future of cooperation and partnership”. 

ASISA is actively involved in working with Government on infrastructure finance for water, energy and student accommodation. We are also looking at collaborative delivery mechanisms with Government and the Development Bank of Southern Africa (DBSA) for programmatic financing solutions.

Jobs Summit

The two-day Jobs Summit, which took place at the beginning of October, brought together representatives from Government, business and labour with the aim of addressing the country's unemployment rate.

It is hoped that as a result of this engagement, new jobs created will increase from 300 000 over the last four years to 575 000 per year. Stakeholders also agreed that the focus should not just be on creating new jobs, but also retaining existing jobs.

The channelling of R100 billion in funding from the financial sector to black owned enterprises in line with the Financial Sector Code’s Black Business Growth Funding (BBGF) provisions was discussed. The Financial Sector Transformation Council and the Department of Trade and Industry are set to develop guidelines for the distribution of the funds.

The 32nd Annual Conference of the International Investment Funds Association (IIFA) was held in Beijing, China, from 22 to 24 October. The conference, which coincided with the 20th anniversary of China’s fund industry, was attended by 70 delegates representing 31 member associations, including ASISA.

The IIFA consists of some 49 national and regional investment funds associations from around the globe representing assets under management of US$49 trillion as at the end of the second quarter of 2018.

The IIFA structure is similar to that of ASISA in that it consists of a number of working committees. ASISA has representation on the following IIFA committees: International Regulatory Affairs, Taxation, Statistics, Cybersecurity and Pensions.

ASISA was represented at the conference by Leon, who is also the chairman of the IIFA.

The conference focused on the changing economic, regulatory and social environment for the global funds and asset management industry. Subject matter experts presented on the state of the global asset management industry and panel discussions focused on topics such as the role of fund managers in pension systems, application of big data, artificial intelligence and block chain in active and passive strategies, global and regional fund passport initiatives and how the industry is able to adapt to evolving requirements of asset owners. There was also a strong focus on costs and disclosure.

Once these presentations have been released by the IIFA, we will make them available on the ASISA website.

Current Yield for Income Generating CIS Portfolios

The ASISA Technical and Operations Board Committee approved a new guideline, with the intention of providing for the consistent calculation of a current yield for income generating Collective Investment Scheme (CIS) portfolios. The guideline enables the comparison of current yields.

Management companies (Mancos) are not obliged to provide current yields for income generating CIS portfolios and this guideline does not intend to create such an obligation. However, if a current yield is quoted in minimum disclosure documents, fund fact sheets or other marketing material, it is recommended that it should be calculated according to these guidelines.

Calculation of one-year TER

The Advertising and Marketing Requirements of the Collective Investment Schemes Control Act (CISCA) stipulate that a one-year Total Expense Ratio (TER) must be calculated over a period of a financial year. This becomes problematic where the financial year-end dates of fund of funds portfolios differ to those of their underlying portfolios.

To enable an accurate reflection of the TER of a fund of funds portfolio, an up to date TER is required from the underlying portfolios. The ASISA Technical and Operations Board Committee therefore approved a new guideline requiring Mancos to calculate a one-year TER quarterly on a rolling 12 month basis, which will be immediately available on request. This will provide a fund of funds portfolio with up to date information to be able to calculate a TER over a period of one financial year.

Authenticated Collections (AC) Project

In 2016, the South African Reserve Bank (SARB) instructed the Payments Association of South Africa (PASA) to implement a new system called Authenticated Collections (AC) to replace the Early Debit Order (EDO) system. The final implementation date is October 2019.

The project timeline and the complexity of the new system is, however, proving problematic for ASISA members. We have therefore informed the PASA and the SARB that the current implementation date is unachievable.

The SARB, PASA and industry participants are currently considering various alternatives to extend the timelines for the outstanding development, testing and implementation. The SARB has proposed a new adoption model within the current timeline, but ASISA members believe it introduces risk and unequal playing fields. In this regard, ASISA has submitted a letter to the SARB detailing the concerns and requesting a meeting to discuss the way forward.

ASISA Standard on Unclaimed Assets

The ASISA Regulatory Affairs Board Committee has approved the revised ASISA Standard on Unclaimed Assets.

The Standard applies to life insurers, asset managers, Collective Investment Scheme (CIS) management companies and linked investment service providers (Lisps). The Standard does not apply to retirement funds.

ASISA members who subscribe to the Standard are committed to honouring unclaimed policy and investment benefit claims no matter how long it takes for the policyholder, beneficiary or investor to come forward and claim the assets. The Standard also sets requirements for members on the treatment of unclaimed assets and encourages the use of enhanced tracing procedures so as to keep unclaimed assets at a minimum level.

The revised Standard, which comes into effect on 1 January 2019 has become more principles based allowing for “greater adoption” of its aims and objectives by ASISA members. The Standard is available on the ASISA website.

ASISA Fund Classification Standard

The ASISA Fund Classification Standard was updated in March 2017. The update to the Equity – Mid & Small Cap portfolios definition resulted in the unintended consequence of stocks in the Mid Cap Index having a higher market cap than stocks in the Large Cap Index. To remedy this, the definition of the SA Equity Mid/Small category has been updated.

The change was approved by the ASISA Investments Board Committee and the revised Standard can be downloaded from the ASISA website.

Performance Fee Standards

The ASISA Investments Board Committee approved the Performance Fee Standards for Hedge Funds and Retirement Funds.  These Standards will now be presented to the ASISA Board for ratification. Once ratified by the Board the relevant documents will be made available on the website.

The SARB published a consultation paper on selected interest rate benchmarks in South Africa on 30 August 2018. Comments are due on 30 November 2018.

The consultation paper represents a culmination of various initiatives, both local and international, aimed at strengthening the credibility and robustness of key interest rate benchmarks. In the context of what was happening globally, and as part of the normal governance arrangements in the SARB, various collaborative initiatives between the SARB and other local financial market participants were undertaken in recent years to establish the extent to which South Africa’s main overnight and term interest rate benchmarks remain accurate, reliable, and representative of the economic realities of the underlying interest they measure.

The reform proposals for the three-month Johannesburg Interbank Average Rate (Jibar) and the South African Benchmark Overnight Rate (Sabor) seek to anchor both benchmarks to a broader universe of transactions while also adapting the respective calculation methodologies to make them more robust.

The development of, and transition to, credible interest rate benchmarks may take some time, mainly due to the structural impediments and liquidity conditions in the markets where we intend to derive these benchmarks. The SARB has established a joint private- and public-sector body, the Market Practitioners Group (MPG), to manage this process. ASISA is represented on the MPG.  Working groups will be established drawing on market expertise and experience.

The Financial Sector Regulation Act prescribes certain requirements for what are termed “significant owners” of financial institutions. During October, the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA) published a proposed joint standard on fit and proper person requirements for these significant owners. ASISA requested comment from members and a working group has been constituted to formulate the ASISA comment on the draft standard.

The Prudential Authority (PA), as the supervisory authority for the long-term insurance industry, hosted a workshop for life insurers on anti-money laundering and counter-terrorism financing.  Topics covered at the workshop included the supervisory processes followed by the PA, the application of administrative sanctions, the implementation of the Financial Intelligence Centre (FIC) Amendment Act and the 2019 mutual evaluation of SA by the Financial Action Task Force.

Due to insufficient feedback from members, ASISA is not in a position to submit consolidated comments in response to National Treasury’s call for input on the Financial Sector Laws Amendment Bill.

National Treasury released the Financial Sector Laws Amendment Bill 2018 in September for public comment by 7 November 2018.  The Bill proposes to amend a number of Acts to provide for the establishment of a framework for the resolution of banks and systemically important non-bank financial institutions to enable the SARB to appropriately manage the impact of a failure of such an institution on financial stability.  The Bill also provides for the establishment of a deposit insurance scheme, including a Corporation for Deposit Insurance and a Deposit Insurance Fund.

ASISA Foundation

The ASISA Foundation participated in the Money Smart Week South Africa 2018 pilot campaign which was held from 8 to 12 October. The campaign was championed by National Treasury and implemented by the Financial Sector Conduct Authority (FSCA) to promote the importance of financial education to South Africans. The aim of the financial services industry collaborating on taking financial education to communities was achieved.

The key messages of the campaign were that financial education is accessible and readily available, qualified institutions and individuals exist to provide informed advice, and controlling your financial situation can have a significant impact on your future financial well-being.

The campaign mainly focused on the communities of Mamelodi, Tembisa, Alexandra and Soweto and consisted of multiple interventions from 48 stakeholders who partnered with the FSCA to implement consumer education activities. 

The Foundation’s participation consisted of:

• Industrial theatre performances to promote understanding of needs and wants, budgeting, savings and managing credit.
• Entrepreneurship workshops were conducted at the Kliptown Job Centre and at the Ivory Park Community Hall in Tembisa.
• Pension fund workshops were conducted in partnership with the Council of Retirement Funds for South Africa (BATSETA).

 Feedback received indicates that participants enjoyed the various activities. There was lively interaction with the audiences and the industrial theatre proved popular with attendees as they felt they could relate with the characters in the show.

ASISA Enterprise and Supplier Development

We recently restructured the operational model of what was previously the ASISA Enterprise and Supplier Development (ESD) Fund to enable us to place even greater focus on supplier development, thereby aligning with the requirements of the Amended Financial Sector Code, which came into effect on 1 December 2017.

All supplier development programmes are now overseen by the ASISA ESD Management Company (Manco). All grant and project capital received from funders for supplier development is channelled through the Manco into supplier development projects.

We are also close to capping our SME Investment Trust (Trust 1) due to the amount of capital contributed to date. We have therefore launched a second SME Investment Trust (Trust 2). All new loan and equity contributions received from funders will be channelled into Trust 2 where appropriate.

Since inception, the Fund has achieved the following:

• 570 SMEs developed
• 3 128 jobs maintained
• 722 jobs created
• 46 000 hours of business support supplied to SMEs
• 25% average revenue increase across supported SMEs
• R316 million deployed in SME support & investments
• Optimal ESD investment for 42 funders

ASISA Academy

The Academy is in the process of concluding the intern selection process for the 2019 Independent Financial Adviser (IFA) internship programme. Some 34 IFA practices in Johannesburg, Durban, Port Elizabeth and Cape Town have signed up to provide black graduates who have a keen interest in financial planning with the opportunity to intern at their practices.

Entering its fourth year, we are very proud of this initiative, which is making a steady contribution towards transforming what was historically a white male dominated industry. The programme thus far has seen over 60% black females being taken on and the 2019 cohort of applicants once again reflects this demographic.

In addition, the programme is also creating jobs and developing skills. In 2017 more than 80% of the Academy’s IFA interns received offers of permanent employment from their hosting IFA practices.

The programme would not be possible without the generous financial support from Allan Gray, Coronation, Investec and Prudential.

Kind regards