Policing the financial services industry

Gareth Stokes, FAnews Online Editor

R505 278 and counting… That’s the amount the Financial Services Board (FSB) Enforcement Committee has “collected” for transgressions of financial services legislation this month to date. The Enforcement Committee is an administrative body established in terms of section 10(3) of the Financial Services Board Act, 1990. The committee – up and running since 1 November 2008 – has powers to impose administrative penalties, compensation orders and cost orders on respondents that are found to have contravened any law administered by the FSB – whether in the insurance, pensions or financial services provider space…

Registrar of Pension Funds refers eight cases

We’ll begin by unpacking the cases referred to the Enforcement Committee by the Registrar of Pension Funds. The first penalties were reported on 7 September 2011 (imposed a day earlier) and involved Fussel & Associates Employee Benefits and TDF Fund Administrators. “The referral in respect of Fussel related to a contravention of 13B (1) of the Pension Funds Act, No. 24 of 1956, read with condition 7.3 as determined in Board Notice 24 of 2002,” explains the committee. Fussel failed to maintain liquid assets equal to or greater than 8/52 of its annual expenditure. TDF went one better… It contravened the same section of the Act, but also overstepped the conditions in Board Notice 24, 7.2. In addition to not maintaining sufficient liquid assets this administrator failed to maintain sufficient current assets to meet its current liabilities! A penalty of R10, 000 was agreed in each of these cases.

The liquid assets rule (BN 24, 7.3) has tripped up a number of other fund managers and administrators. On 13 September the Enforcement Committee imposed R10, 000 penalties on each of Foord Asset Management, Ultimate Fund Administrators and Hermes Asset Management after the responsible persons at these organisations admitted to contravening the Act and agreed to settle the matter. On 15 September it was Sanlam Trust Limited that ran into trouble. The group failed to maintain liquid assets greater or equal to 8/52 of its annual expenditure during the year ended 31 December 2011, and agreed to a slightly heavier penalty totalling R36, 585.

On 18 September a case against Lereko Metier Capital Growth Fund Managers was finalised. The fund manager tripped up on the same set of rules as TDF – and failed to reach the liquid assets requirement in each of its last two reporting periods (FY2009 and FY2010). Its penalty came in at R70, 000! And the last case referred by the Registrar of Pension funds was Southern Africa Quantum Employee Benefits, which was fined R18, 693 by the Enforcement Committee on 19 September 2011.

In each of these cases “the Registrar took into account, amongst others, that: the officers accepted responsibility for the contravention; there was no evidence of any prejudice resulting from the contraventions; they fully co-operated with the Registrar’s investigation and the enforcement action; their officers displayed remorse for the contravention.”

The FSP Registrar ups the ante

The Registrar of Financial Services Providers has been busy this September too. It referred a number of cases to the Enforcement Committee, beginning with Mr Friedrich Lombard, who contravened Section 2 of the General Code of Conduct for Authorised Financial Services Providers and Representatives, 2003 (issued under the FAIS Act 37 of 2002). The Enforcement Committee explains: “The contravention occurred on 3 July 2009, when the respondent (Mr Lombard) telephoned Santam Insurance Limited and, under false pretences, obtained the policy details of an insured person of Santam.” The respondent was employed as a financial adviser with another company at the time... After quoting a number of facts in mitigation, a penalty of R50 000 was handed down on 6 September.

On the same day, a penalty of R100, 000 was levied against Clientèle General Insurance Company. Clientèle contravened section 13(b)(i) of the FAIS Act by rendering financial services as a representative of Intermediary Support Services SA whilst it was not lawfully appointed as a representative. The contravention occurred between 1 November 2008 and 10 March 2009.

A couple of weeks later the Enforcement Committee heard another matter referred to it by the Registrar of Financial Services Providers… The party in this case was Fin-U-Med Corporate (trading as Sport Solutions). The company contravened section 7(3) of the FAIS Act by conducting financial services related business with the South African Rugby Players Association, which was not authorized to render financial services nor a lawfully appointed representative. The FSB kitty swelled with another R100, 000 on 15 September 2011. And finally, JDDN Consulting Services (trading as Discovery Consulting Services Limpopo) was fined R80, 000 for contravening section 3A(1)(a) of the General Code of Conduct by – on 21 January 2011 – by paying for the travelling costs associated with the training of other providers.

Editor’s thoughts: It seems the regulators have their hands full policing the financial services industry… There are still a few working days in September, so they could yet add to the already impressive R505, 000 haul. Do you believe the FSB is effectively dealing with all transgressors in the domestic financial services space – or are these transgressors ‘unlucky’ to get caught? Please add your comment below, or send it to gareth@fanews.co.za