South Africa mulls bespoke PE regulations

The country’s financial services regulator is reportedly working on a new code of conduct specific to the asset class.

South Africa’s Financial Services Board (FSB) is drafting a code of conduct specific to private equity managers to add to the existing Financial Advisory and Intermediary Services (FAIS) Act, according to a report from local newspaper the Sunday Times.

Currently, managers of South African private equity funds are required to be regulated as financial services providers (FSPs) under the FAIS Act. However, confusion persists because managers can register as a Category 1 or a Category 2 FSP, designations that are generic and not specific to the asset class.

Category 1 is a less strict regulatory regime for non-discretionary managers, while discretionary asset managers with South African pension fund investors must hold a Category II license, which has more onerous reporting requirements.

The FSB is now working on a Category 6 of the Act to address the risks and needs specific to the private equity industry. The regulator has been working with industry representatives and the South African Venture Capital and Private Equity Association (SAVCA) in order to create the draft regulations.

Industry professionals believe the new regulations will be less stringent than the current ones, as sophisticated private equity investors generally do not need as much protection as retail investors.

Erika van der Merwe, chief executive of SAVCA, noted that the new regulations will not change the way the sector does business. “I just think the licensing process will be easier,” van der Merwe told the Times. It is unclear when draft regulations will be published.