The Financial Services Tribunal (FST) has reprimanded the Financial Sector Conduct Authority for taking five years to finalise an investigation and impose a sanction, saying individuals who are subject to administrative action are entitled to fair processes that include the speedy finalisation of their matter.
The Tribunal made these comments in a decision – delivered this month – that dismissed a reconsideration application brought by Shaheen Khan, who was fined R4.5 million and debarred for 10 years in September last year.
An investigation by the FSCA found that Khan contravened section 7(1) of the Financial Advisory and Intermediary Services Act by offering to act or acting as a financial services provider without a licence under section 8 or without having been appointed as a representative of an authorised FSP under section 13. In addition, Khan rendered intermediary services in respect of a foreign currency-denominated investment instrument without authorisation.
According to the decision, it was common cause that Khan operated through Roche Futures SA, a company he registered with the Companies and Intellectual Property Commission as its sole director. Roche SA maintained a business bank account with First National Bank, where Khan was the sole signatory.
The FST found that between 1 June 2016 and 31 December 2018, about 54 clients deposited R7 995 053 into this account. However, only R517 163 (6% of the total) was repaid to clients, while R4 442 700 (56%) was transferred to Khan’s personal account and used for personal expenses. Only R220 773, or 3% of the deposits, was withdrawn by clients.
Khan sought reconsideration of the FSCA’s decision on various grounds – none of which stood up to scrutiny by the Tribunal.
The FST found, among other things, that the analysis of the bank statements and how Khan mingled the investors’ funds with his personal account funds demonstrated that the FSCA’s findings were correct with respect to “his lack of integrity, dishonesty, incompetence and the risk posed by his conduct to the public at large if he were permitted to continue”.
One of the grounds was that the FSCA issued him with a fit and proper certificate in respect of another company. Another ground related to the delay in the Authority’s decision-making process.
Fit and proper certificate issued by mistake
Khan submitted that in May 2023, before he was issued with a notice of a sanction, he approached the FSCA for a fit and proper certificate relating to Arc Market (Pty) Ltd, of which he was the sole owner. This certificate was granted.
He contended that when the FSCA informed him that his application for a fit and proper certificate was successful, that was a final decision recognising him as a licensed FSP, because he was not informed at the time that the Roche Futures SA investigation was still ongoing.
Khan argued the FSCA was estopped from overruling its own decision and was functus officio (it has made a decision that cannot be altered).
The FSCA admitted to an internal error caused by a lack of communication between its Enforcement Office, which handled the Arc Market application, and its Investigation team, which had been investigating Khan and since January 2019.
The Tribunal said the delays in the FSCA’s finalising the investigation and its administrative processes were “unjustified”. However, Khan could not benefit from this error because the fit and proper certificate was issued based on false information. Khan failed to disclose he was under investigation and had been interviewed by the FSCA in another matter.
Specifically, Khan completed the FSP 4D form for Arc Market as its sole director and shareholder. One of the questions asked whether he had been subject to any investigation or disciplinary proceedings by a regulatory authority or similar body. Khan answered “no” despite knowing he was under investigation by the FSCA. This untruthful response misled the Licensing Team responsible for issuing the certificate.
The Tribunal said it could not allow Khan to benefit from his misrepresentation, and the defence of estoppel and functus officio could not avail him.
‘Inordinate delay’ in finalising the matter
Khan said the Authority began its investigation on 21 January 2019, and it issued a notice of intention to sanction on 26 October 2020. Khan submitted his representations on 15 February 2021, but the FSCA took no action until imposing the sanction on 2 September 2024. Khan contended he was entitled to a reduced debarment as a result of the “unexplained” delay.
In response, the FSCA said it had initially, in its proposed sanction, imposed a debarment of 15 years, but because of its delay, reduced the period to 10 years. The Tribunal noted that the debarment order issued in October 2020 did refer to a debarment of 15 years.
However, the Tribunal upheld the 10-year debarment, describing it as “appropriate, dissuasive, and effective” in light of the seriousness of the contraventions.
It also called on the FSCA to ensure there is better co-ordination between its departments to avoid errors such as the fit and proper certificate application and the “inordinate delay” in finalising the matter.
The Tribunal found the FSCA’s timeline unacceptable, stating that five years for finalising the investigation and imposing a sanction was “unreasonable”. It further noted that a gap of three years and seven months between communicating a notice of administrative action and taking the action was “equally unreasonable”.
“Persons that are subject to administrative and/or enforcement actions at the hands of regulators are entitled to fair processes that include speedily finalising their matters and bringing finality to matters.”
It also emphasised the importance of prompt enforcement to safeguard the investing public from individuals who do not meet the required standards.
