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South Africa - Midshore Consulting

South Africa

The synergies between the offshore centres in the Channel Islands and South Africa are longstanding and myriad. The cross-border offering is not limited to a single product as the combined offering of banking, investment funds, life assurance, wealth management and wealth structuring (trust & company) provides a holistic offering to both institutional and retail clients from South Africa.

South Africa is the most mature, developed economy in Africa and as a result has a robust AML/CFT regime as exemplified by FICA legislation. It is the only African country that both the Guernsey Financial Services Commission and the Jersey Financial Services Commission considers as equivalent (low risk) for AML/CFT purposes. This makes it relatively easy for financial institutions located in the islands to complete onboarding of South African clients (comparable to onboarding clients from the United Kingdom).

Banking

The islands have strong banking ties with South Africa with a number of South African banks having branches or subsidiaries. In fact, the most recent Guernsey banking licensee was a local branch of a South African bank.

Channel Islands banks are used to servicing South African clients and their investments, portfolios and structures. Guernsey banks typically provide custody arrangements alongside traditional banking services to provide a home for their investments alongside their cash.

Insurance

Guernsey is one of the leading centres for captive insurance, and has South African clients alongside those from many other jurisdictions. Guernsey has nearly a century of expertise in this area with the first captive insurer incorporated in 1922 and an insurance industry dating back to the 18th century.

The islands can also be home to an offshore life branch of a South African life assurance company in accordance with the Long Term Insurance Act of 1998. This provides an offshore platform through which unit-linked life cover can be provided in a currency other than the Rand and investing into offshore funds. Often these funds can be a mix of funds from the company’s own group and selected third party funds. A local general representative & management committee will be needed along with a trustee (for the platform) and custodian (holding the underlying funds).

Investment Funds

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The Channel Islands have a diverse fund offering, ranging from open-ended retail funds to closed-ended alternative asset funds. Guernsey is particularly known for listed/traded funds and private equity, whilst Jersey is a key jurisdiction for real estate investments. That being said both islands cater to all types of fund.

For retail funds registered for sale into South Africa, Jersey and Guernsey have (respectively) the 3rd and 4th highest number of fund registrations with the Financial Services Board (FSB). Local fund service providers in both islands are used to funds registered under section 65 of the Collective Investment Schemes Control Act of 2002 as supplemented by Board Notice 257 of 2013 relating to the conditions for foreign funds soliciting investments in South Africa. They will further have experience of Information Disclosure (including the Minimum Disclosure Document (MDD)) as required under Board Notice 92 of 2014 with the exemptions noted in Board Notice 74 of 2015.

Of course retail selling is not the only method of selling investment funds into South Africa, other examples include:

  • Selling via the Offshore Life Branch of a South African life assurance company
  • Creating a ZAR-based feeder fund either for general unit trust sale or as a life fund to be made available on an onshore platform
  • Creating a “completion” fund to take the up to 25% investment allowed by Pension Fund regulation 28

The islands can also be home to private equity, debt, infrastructure and real estate funds investing into Africa and sold on the international market. The islands each have access to the key European Union markets under Article 42 of the Alternative Investment Fund Management Directive (AIFMD) and are the only jurisdictions to have twice been recommended for the AIFMD third-country passport (which has yet to be implemented by the EU) without reservation. Both islands have international reach under various private placement regimes.

There are also staffed (“substance”) offices of the local subsidiaries of South African investment management businesses. Such offices can provide strategic regulatory and tax positioning under both AIFMD and the OECD’s Base Erosion and Profit Shifting (BEPS) action plan. An offshore office with substance can manage/administer both local and non-local funds as well as being investment manager to bespoke portfolios and distributor to funds established in other jurisdictions. If establishing an Offshore Life Branch (as noted above) the offshore team can take responsibility for operating both.

Wealth Management

The islands both have investment licensees that operate wealth management services, providing bespoke investment advice and management for both institutions and wealthy individuals. Some of these businesses have taken the step of obtaining a FAIS license so that they can offer their services to South African residents.

Wealth Structuring

Local fiduciary licensees can offer the formation and administration/management of various trust, company, foundation and partnership structures which may be suitable for offshore wealth management purposes. It must, however, be taken into account that fiduciary licensees are obligated to report holdings of vehicles used purely for investment purposes under the Common Reporting Standard.

Fiduciary licensees can also offer pension scheme products, some of which have been tailored specifically for the South African market.