The FSCA has exempted managers of collective investment schemes from having to obtain an advanced electronic signature (AES) from an investor when transacting online.
An AES is a type of digital signature. In order to sign a document with an AES, the signer must obtain an advanced electronic certificate from a vendor accredited by the South African Accreditation Authority.
In terms of the Electronic Communications and Transactions Act (ECTA), a signer must pass through a face-to-face identity verification process before the vendor can issue their certificate.
Board Notice 92 of 2014 sets out the advertising, marketing and information disclosure requirements for collective investment schemes.
Paragraph 18(1), read with paragraph 18(3), of Board Notice 92 requires a CIS manager to obtain a signed application form or contract from an investor.
However, the notice does not state what format an investor’s signature must take when contracting electronically.
Section 13(1) of the ECTA states that where a person’s signature is required by law, and the law in question does not specify the type of signature, the requirement in relation to a data message is met only if an AES is used, the FSCA said in a communication published on 3 June.
Therefore, when a CIS manager enables an investor to transact online, the investor must sign the application form or contract by using an AES.
The FSCA said that because of “the technicalities relating to AES as set out in the ECTA”, it may often be difficult for CIS managers to comply with the AES requirements.
“Even though the main deeds of CIS managers have provisions that govern electronic transactions between the CIS manager and the investor, the terms of the main deed will not override the requirements set out in the ECTA,” the Authority said.
“Electronic transacting supports easier access for customers and is, as a result, supportive of financial inclusion. Accordingly, the FSCA is of the view that it would be in the public interest not to require CIS managers to apply an AES when transacting electronically.”
Conditions apply
The FSCA said the exemption from paragraph 18(1), read with paragraph 18(3)(k), is subject to the following conditions:
- The manager must obtain “a demonstratable form of confirmation” from the investor that the application form or the contract constitutes the agreement between the manager and the investor.
- The manager must verify the identity of an investor and implement processes to authenticate each transaction of the investor.
- The application form or contract provides for:
- The procedure for the submission of an electronic application;
- The terms and conditions applicable to the submission of an electronic application and the legal implications thereof;
- Any disclaimers on and limitations of liability on the part of the manager;
- The security risks and risk of interception inherent to electronic transacting;
- Related precautionary or security measures; and
- Confirmation by the manager that its website complies with relevant legislative requirements applicable within South Africa.
- The terms and conditions under which an electronic application may be submitted must be displayed on the screen of the digital platform used to submit the application.
Failure by a manager to comply with any of the above conditions will automatically result in the exemption no longer being applicable to that manager.
The exemption is valid for two years after the commencement date (3 June 2022).
For more information about the exemption, contact the FSCA’s Regulatory Framework Department at marianne.vanrooyen@fsca.co.za.
To download CIS Notice 5 and the FSCA’s communication, go to www.fsca.co.za > Regulatory framework > Notices > CIS/Hedge funds > 2022
