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Thorough checks required FSP licence or not

03 July 2007 Gareth Stokes

The Financial Services Board (FSB) is responsible for policing the financial services industry. One of its main functions is an oversight role for the regulations promulgated in the Financial Advisory and Intermediary Services Act (FAIS).

The FSB therefore plays an important part in the issue and renewal of Financial Services Provider licences, the supervision of financial statements and compliance reporting from licensees, investigations of complaints and regulatory enforcement.

Unfortunately, the regulation of the financial services industry has not stamped out all instances of financial fraud and misrepresentation. Consumers still have to thoroughly investigate the financial product offered to them.

Checking is quick and easy

Searching the FSB database is a useful first step in determining whether a company's FSP licence claim is correct and it is really easy to check whether a company is registered with the FSB. You can simply visit the FSB website at www.fsb.co.za, click on the "FAIS" link at the top right of the page, and then select "Search for financial services providers" from the list that appears.

An easy to use form enables you to search the FSB database by company name, FSP licence number or postal area. You can perform similar searches to determine if a particular representative has been de-barred or if a company licence has been withdrawn or suspended.

The problem is, once you have confirmed the validity of an FSP's licence, you still have to do some legwork to make sure the company is representing its licence correctly and that the financial service being offered is reasonable. Remember, just because a company claims to be licensed, does not mean it is. And a company that is licensed could easily be offering investment products in a field not covered by said licence.

Common abuses of FSP licences

The FSB provides regular updates on the status of Financial Service Provider licence applications. The details released include the number of finalised licence applications, the number of declined applications, a list of declined applicants and details of any declined applications that have subsequently been reversed.

In the latest release, dated 29 June 2007, FSB deputy executive officer for Market Conduct and Consumer Education, Gerry Anderson advises that steady progress was being made in finalising all licence applications received from Financial Service Providers (FSP) for authorisation. The latest figures indicated the FSB has finalised 16, 217 applications of which 1, 274 were declined.

"FSPs whose applications had been unsuccessful, withdrawn or suspended are entitled to appeal to the FSB Appeal Board, an independent tribunal, if the applicant is dissatisfied with the decision taken by the Registrar," said Anderson.

Anderson also expressed concern at the number of FSPs who were misrepresenting their licences, or using their licences in an improper manner. The main misconducts include the use of licences to cover activities for which the FSP was not licensed, or the use of FSP licences by third parties (whether authorised or not). This form of abuse was usually a direct attempt to mislead investors and would not be tolerated by the FSB.

Another recent warning

This updated followed hot on the heels of another warning issued by the FSB to investors on 27 June 2007. An alert was issued regarding a scheme called "Scholar Plan" operated by a South African based businessman, Maurtiz van Roon.

Using a Centurion based close corporation called Troy Capital Ventures, Van Roon is peddling a financial 'plan' to assist struggling parents pay for their children's school fees. According to FSB spokesperson Russel Michaels, "The FSB was alerted by a member of the public who had received promotional material from Troy Capital Ventures CC, was sceptical about it, and enquired whether the entity was registered with the FSB.

"According to the promotional material the investor has to pay a once-off amount equivalent to double the annual school fees of a particular learner.  For example, if the school fees of the learner amounts to R5 000 a year, the amount required by Troy Capital Ventures is a lump sum of R10 000.

"This money would purportedly be invested in various instruments locally and offshore. Once the contribution was paid into Troy Capital Venture's bank account, according to Van Roon, the entity would fund the school fees for that learner until the completion of Grade 12.

"The FSB has no record of Troy Capital Ventures and suggests that the public preferably approach a recognised financial institution for a study loan," said Michaels

We have not viewed the marketing material for this scheme, but if it operates as described above it should immediately set the alarm bells ringing. A financial 'wizard' who believes he can return 50% per annum for a period of as long as 12 years is bound to disappoint.

Editor's thoughts:
There have been many reports of financial wrongdoing in the first half of 2007. One of the frightening aspects of these cases is how often wrongdoers purport to be operating with FSB approval. Do you implicitly trust an investment offered in conjunction with an FSP licence number, or do you choose to act cautiously and investigate the merits of the product being offered? Send your comments to
gareth@fanews.co.za

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