Now is the time for action against industry fraudsters
What will the future look like under the Twin Peaks model, where the Financial Services Board’s (FSB) sole task will seemingly be to make sure that the industry complies with the regulation set out by the Reserve Bank, who will be in charge of policy formation? What types of punishment will the FSB hand down to errant industry role players?
While regulation is currently the foremost question on the industry's mind, perhaps some focus should be given to the issues discussed above. This comes in the wake of yet another determination where blatant unscrupulousness almost resulted in yet another statistic whereby a member of the public almost lost all of his retirement savings.
Putting faith in the wrong person
A complaint was brought before the Office of the Financial Advisory and Intermediary Services (FAIS) Ombud by Senamane Machaha (complainant) who invested an amount of R100000 in 2009 with Lindiwe Magajana (respondent).
After receiving financial advice from the respondent, the complainant invested the money as part of a money market investment policy. The complainant did receive a policy schedule with the name of Magajana's company, Magajana Financial Services, which was registered with the FSB at the time.
Although Magajana Financial Services was registered as an authorised financial services provider with the FSB, the FSB withdrew this licence in January 2012 because Magajana Financial Services failed to submit financial statements and compliance reports.
The investment policy was to pay the complainant R1420 per month up until two month notice period of a withdrawal. While some payments were met, an outstanding amount of R80000 was not paid to the complainant, which prompted him to approach the Ombud. The complainant is seeking restitution of the R80000 plus accumulated interest.
Not making good on assurances
Submitted with the complaint was a written affidavit which the respondent filed with the South African Police Services where she promised that she would pay the amount of R80000 to the complainant in two payments by the end of 2012. No payments were made.
As the end of the year approached, and no payments were made, the Ombud approached the respondent asking her about the delay in the payments. She duly apologised for the delay and promised to settle the account in full, plus any accumulated interest, by 20 December 2012.
This was not met, and again, the Ombud approached the respondent who again offered an apology and asked to be given until 11 March 2013 to make the payment. Again, this was not met.
The respondent then later said that she did make payments into the complainant's bank account, as well as the bank accounts of the complainant's wife and daughter. When asked to furnish evidence of these payments, she could not provide them.
A sad case of negligence
As with most of the determinations that we have profiled, this is a sad case of negligence where the financial service provider unquestionably tried to take advantage of a person who is not knowledgeable about the financial services industry.
The Ombud ruled that the respondent had to pay the full amount of R80000 as well as accumulated interest of 15.5%.
One of the reasons for the movement towards the Twin Peaks model of industry administration is that the FSB can concentrate fully on compliance and cleaning up the areas of the industry that are currently making some people sceptical about the industry.
The financial services industry acts on a principle of trust. Policyholders trust their advisers that insurance policies are being taken out and that retirement funds are being invested in the proper manner. However, when trust is broken with one adviser it becomes unfair on those advisers in the industry that are honest and do business in the required manner.
The question is, what punitive measures will be handed down by the FSB under the Twin Peaks model to protect the integrity of the industry? While the FSB does have a role to play in protecting the public, it also has a duty to protect industry stakeholders.
In most cases of fraud, criminal action would need to be taken by the complainant on the offending party.
Editor's Thoughts:
Whatever happens, drastic action needs to occur in order to regain the infallible reputation of trust where trust can be given freely to every broker or adviser. If this trust is broken, an example needs to be made of the offending parties. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
Comments
How exactly was the amount of R80,000.calculated.Was this part of the capital amount?
Did the client in fact get any money back or is this another empty deliberation? Report Abuse
This is a problem as old as the hills.
You may be absolutely assured that yet more legislation, regulation and civil servants will not eradicate it. On the contrary, they will very likely merely make buying insurance and investments even more expensive than it is now, as clients are expected to subsidise this ever-growing weight of bureaucracy.
In the end - regrettably, probably not in your lifetime - we shall return to the basic caveat emptor and common law our forebears discovered many centuries ago. But it seems our lot wish to learn this lesson all over again for themselves. Report Abuse