Financial crimes watchdog nets R100 million in penalties

The Financial Sector Conduct Authority (FSCA)  has, over the past year, imposed R100 million in penalties against firms and individuals found guilty of misconduct, and referred dozens of cases to the police and the Directorate for Priority Crimes Investigations ( the Hawks) for investigation.

The FSCA’s divisional executive for enforcement, Gerhard van Deventer, and his team presented the watchdog’s Regulatory Actions Report 2023 to financial service providers in Durban on Wednesday, where they highlighted the slew of problems facing the sector. 

These ranged from misconduct of registered service providers, illegal trading and unregistered cryptocurrency scams to funeral parlours selling insurance, deep fake adverts promising unrealistic returns and foreigners targeting South African professionals to use them in high risk investment schemes.

Van Deventer said over the past financial year the authority had used almost its entire range of sanctions or interventions to deal with misconduct, from imposing financial penalties to suspending and withdrawing professionals and companies’ licences.

It had imposed R150 million in financial penalties against individuals and companies. 

However, in a case involving Viceroy, a R50 million fine had been overturned at the Financial Services Tribunal. The finding was that the authority lacked jurisdiction in the matter, but Van Deventer said the case was ongoing because the FSCA planned a legal challenge.

According to the report, the authority also suspended 984 licences and withdrew 421 licences, imposed 210 debarments, issued 47 public warnings and referred 70 cases to the National Prosecuting Authority, the police, or the Hawks for criminal investigation.

“We are doing this job to keep your industry clean. Timely and visible enforcement is only credible as a deterrent if it is visible, which is why it is written into our law that every sanction we impose is published,” Van Deventer said.

He said the authority relied on a sophisticated surveillance system on stock exchanges, an anonymous tip-off line, protected disclosures, and a team that monitors social media platforms to hunt down mentions of phrases such as “excellent returns”.

“The mention of unrealistic returns is the biggest warning,” he said. 

Although the authority handles complaints against unregistered businesses, taking down scams was not within its jurisdiction, he added.

Most cases investigated for the period involved alleged contraventions of the Financial Advisory and Intermediary Services (FAIS) and Insurance acts, of which there were 245 and 91 investigations respectively, as well as 61 alleged violations of the Financial Markets Act.

Insurance investigations related mostly to unregistered insurance business, the majority of which was conducted by funeral parlours. As a result, the authority has established a dedicated team to investigate undertakers, which has involved visiting businesses, assisting them to become regulated and work with licensed insurance product providers.

Van Deventer said undertakers were different from cases such as Mirror International Trading and N-e-FG Administrators, whose misconduct had resulted in harm to clients, and had to be taken out of the market.

“Funeral parlours are different in that they serve the community in a good way with a very important service and the community supports them. But the problem is that they are collecting monthly premiums from clients, so that when the day comes they have to produce a funeral,” he said.

“These are people we must find a way to regulate … and from an enforcement side we don’t just go in and impose penalties. Our team goes across the country and finds who is doing unregulated business and asks them to regularise. It’s a much softer enforcement approach because we are dealing with a different situation.”

Van Deventer warned professionals against “renting” their resumes to people, to serve as the key individual legally responsible for managing and overseeing the activities relating to the rendering of a financial service.

“It is shocking what is going on in the industry — rent-a-CV. There are key individuals who have never even been to the company.  What is happening is people overseas are targeting South Africans to be key individuals and by the time the dust settles they are debarred, they are out of the industry and they get penalties they cannot afford and they (the foreigners) are gone,” he said. 

In one case an older man was listed as a key individual in a company but had no access to its bank accounts.

“He said it was ‘not a problem because the company is dormant’ but we asked him how can it be dormant when they have stolen R300 million from staff to date? When something goes wrong we are not interested in the CEO or the director — we go straight to the key individual and ask when we can have an interview,” he said.

He said another problem plaguing the industry was financial service providers working in cahoots with human resources staff to steal employees’ data and fraudulently sign them up for  policies.

Van Deventer said the authority had closed the legal loophole on cryptocurrency, which he described as “a high risk” investment because in 80% of cases investors lose their money. Crypto assets are now regulated as a product under the FAIS Act. He said the authority had received a total of 343 registration applications from product providers by the November 2023 deadline.

The biggest concern regarding cryptocurrencies was from foreigners targeting South Africans, leading to people sinking and losing their pensions in trades on the internet.

“We have asked our social media monitoring team to focus on crypto for a while so we can get the industry clean,” he said.