This blog was co-authored by: Hishaam Khan, Associate Designate

The Financial Sector Conduct Authority (FSCA) published FSCA CIS Notice 1 of 2022 which determines amounts in addition to those in section 93(1) of the Collective Investment Schemes Control Act, 2002 (CISCA) that may be deducted by a manager from a portfolio.

The Notice permits the manager to deduct the following additional amounts from a portfolio:

  • legal fees and costs incurred to protect the value of, or enforce the rights in, an asset held in a portfolio;
  • costs or fees payable to a delegated person (a person to whom an administrative function is delegated) for claiming and receipt of foreign taxes withheld and due to the portfolio; and
  • costs of a delegated person to recover VAT due to a portfolio.

The FSCA has stated that it is in the interest of investors to allow the deduction of these additional costs and fees from a portfolio.  The recovery of VAT and withholding taxes produces income for investors, and the legal fees are incurred in protecting their interests.

To remind readers, section 93(1) of CISCA states that the following amounts may be deducted from a portfolio:

  • charges payable on buying or selling assets for the portfolio such as brokerage, marketable securities tax, value-added tax (VAT) or stamp duties;
  • auditor’s fees, bank charges, trustee and custodian fees and other levies or taxes;
  • share creation fees payable to the Registrar of Companies for the creation of authorised capital or, in the case of a collective investment scheme in property, costs incurred in the creation and issue of participatory interests;
  • agreed and disclosed service charges of the manager; and
  • any costs incurred as a result of a collective investment scheme in property being listed on an exchange.

FSCA Guidance Notice 2 of 2021 dated 25 June 2021 provides guidance on the application of section 93(1) of CISCA.  Additional costs and fees were identified that could not be deducted in terms of section 93(1) of CISCA and the Guidance Notice.  Industry members requested the FSCA to use section 93(2) of CISCA to determine additional costs as permissible deductions which has now been done to the extent described above.