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The FSB recently issued press releases on three findings against financial services providers by its Enforcement Committee. While findings have traditionally been made against people found guilty of insider trading, the focus now appears to include the business of our readers.
These findings are summarised below:
1. Siphiwo Financial and Management Consultants (Pty) Limited (Siphiwo) was fined R10 000 for furnishing advice and rendering intermediary services with regard to insurance products of Nestlife whilst not being authorised to act as a financial services provider. In arriving at an appropriate penalty, the Registrar considered that the contravention was as a result of a bona fide oversight; that Siphiwo accepted accountability; that there was no prejudice resulting from the contravention and that Hendrik Matthys Jacobus Petrus van Zyl, who was in control of Siphiwo at all relevant times, was authorised as a financial services provider.
2. The Committee imposed a penalty of R15 000 on Mahuhuli Funeral Services CC for carrying on the business of long-term insurance without being registered by the Financial Services Board as a long-term insurer and without being authorised to do so.
3. The Registrar of Short-Term Insurance referred a case against African Eagle Financial Services (Pty) Limited (African Eagle) to the Enforcement Committee. African Eagle published an advertisement in the months of August and November 2010 in which it advertised the marketing of a short-term policy, without disclosing the identity of the short-term insurer underwriting the policy. The Registrar took into account that: the officers accepted responsibility for the contravention; there is no evidence of any prejudice resulting from the contravention; African Eagle fully co-operated with the Registrar’s investigation and the enforcement action; its officers displayed remorse for the contravention; African Eagle undertook to immediately remedy the breaches of the Act. Consequently, the Registrar agreed to a penalty of R25 000, which penalty was imposed by the Enforcement Committee on African Eagle on 11 May 2011.
From the above it is evident that these are not the kind of transgressions which can be identified as a result of a complaint from the public. It is also evident that mitigating circumstances (versagtende omstandighede) will be taken into account.
The following information is based on an article by Gerhard van Deventer which appeared in the FSB Bulletin in 2009. We trust that it will assist readers in understanding the purpose and workings of Committee.
The FSB’s Enforcement Committee is an administrative body that has the authority to impose administrative penalties, cost orders, and compensatory orders on offenders of FSB legislation. Its purpose is to deter non-compliance by acting swiftly against transgressors.
While the initial focus was on market conduct, and specifically insider trading via the Capital Markets Enforcement Committee, its powers was extended in November 2008 when the FSB Enforcement Committee was established.
Jurisdiction of the Committee
If it is established that any law administered by the FSB has not been complied with, it may be referred to the Committee. This includes non-compliance with subordinate legislation like regulations and codes of conduct. However, cases in which the Registrar has the authority to impose penalties cannot be referred to the Committee.
Process
Referral to the Committee is initiated by the Registrar filing a notice setting out the details and nature of the alleged contravention, and the recommended administrative sanction. The Registrar must file an affidavit setting out the facts and documents supporting his case.
The respondent(s) has 30 days to deliver an answering affidavit. This affidavit must state which allegations the respondent admits or denies, as well as the respondent's version of the facts. Pleadings are closed by the filing of the replying affidavit of the Registrar.
Within 30 days of close of pleadings, the Committee must determine a hearing and appoint a panel of at least three of its members to consider the case. The panel must consist of an attorney or advocate of more than ten years standing, or a judge to act as chairperson, and additional members.
At the hearing all parties get the opportunity to argue their case. Parties may address the panel on whether a law has been contravened and what the appropriate administrative sanction should be.
The matter is decided on the papers before the panel, taking into account arguments by the parties. However, in exceptional cases, if a matter cannot be properly decided on the papers, the panel may order any person to appear before the panel to give evidence or furnish additional documents.
Whilst some may see the committee as yet another “Ombud”, the make-up of the committee and the process followed appears to be far closer to traditional legal proceedings than that applied by the office of the FAIS Ombud.
Enforcing Committee orders
A determination by the Committee has legal force as if it was made by the High Court. The FSB enforces these orders in cases of non-payment, by lodging a certified copy of the order with the High Court. Civil execution steps are then available to the FSB.
Appeal against a Committee
A determination may be taken on appeal to the High Court.
The appellant does not need to apply for leave to appeal. The launching of appeal proceedings does not suspend the execution of a determination of a panel, but the appellant may apply to the chairperson of the Committee for such suspension.
Double jeopardy
Committee proceedings do not affect any person's right to seek legal redress in other appropriate forums. A respondent may therefore be penalised by the Committee and sued by a victim in the civil courts.
Similarly, Committee proceedings do not limit the possibility of criminal prosecution or disciplinary proceedings. This does not offend against the principle of double jeopardy, but a latter tribunal must take into account any administrative sanction imposed by the Committee.
