Earlier this year, the FSCA announced it had imposed an administrative penalty of R2 million on Quintin Moorcroft and Pioneer FX (Pty) Ltd for rendering financial services without authorisation. It also debarred him for 10 years.
Read: FSCA fines Pioneer FX and Quintin Moorcroft R2m
According to the FSCA, Pioneer FX and Moorcroft traded in contracts for difference on behalf of clients between March and July 2019 through a multi-account manager (MAM) trading account opened at IFX Brokers Holdings (Pty) Ltd (a licensed entity).
The Authority said Moorcroft’s clients lost about R2.7m of their funds.
Click here for more details of the FSCA’s submission relating to its sanctioning of Moorcroft.
Moorcroft brought an application before the Financial Services Tribunal (FST) for the penalty and his debarment to be reconsidered.
The FST’s decision in this matter sheds light on the FSCA’s rationale when deciding on the amount of a fine, as well as how the tribunal assesses whether a fine is appropriate.
It appears that what the FSCA referred to as “effective deterrence” is the Authority’s main consideration when fining those whom it finds to be providing unregistered financial services.
The FST quoted from the FSCA’s Notice of Administrative Sanctions:
- The Authority is of the view that deterrence should be a central consideration when determining the quantum of the administrative penalty to be imposed. The strong need to deter future conduct of this nature, which is directed at protecting members of the public, is the overriding consideration in the present matter.
- Unregistered financial services are endemic in the industry and notoriously difficult to detect. The risk that unregistered financial services poses to the segment of the public that can least afford the risk makes it imperative that the Authority should focus on effective deterrence.
- The respondents benefited from the contravention and received approximately R250 000 in commission from clients. Moorcroft caused trades to be executed on 276 client accounts and lost approximately R2 788 957.13 of clients’ trading funds.
- The Authority noted the submissions that the trading losses was not entirely due to his trading activities.
- The Authority also considered the submissions.
- It is common cause that IFX was not the first broker through which Moorcroft traded on behalf of clients.
Determining an appropriate penalty
The FST said an administrative penalty imposed by the FSCA must be assessed against the requirements of section 167 of the Financial Sector Regulation Act (FSRA).
Furthermore, the tribunal said “deterrence” should not be the overriding consideration when imposing a penalty. It quoted from its decision in MET Collective Investments (RF)(Pty)(Ltd) v Financial Sector Conduct Authority:
- Deterrence is an elastic concept with grey borders, and it is easy to justify a sanction which is in effect retributory under the heading of deterrence […]
- […] the provision is not penal in the criminal sense. Furthermore, it is not overriding. What is overriding is the appropriateness of the penalty, which means that it must be balanced, proportionate and fair.
- Deterrence in section 167 is not a self-standing determinant but “must” be “considered” in conjunction with the degree to which the person has co-operated with the regulator in relation to the contravention; and any submissions by, or on behalf of, the person relevant to the matter, including mitigating factors referred to in those submissions […]
- […] mechanical checklists in determining any sanction, administrative or criminal are problematic. Ticking the box of each element does not mean that the correct weight was attached to the element or that result is necessarily “appropriate”, which is the ultimate measure […] Eventually, the “appropriate” penalty, having regard to the deterrence factor, can only be assessed after consideration of all the relevant factors, whether aggravating or extenuating.
- In reconsidering the penalty, it must be borne in mind, as we have held in Mwale v the Prudential Authority, that: “The ordinary rule is that a higher body is not entitled to interfere with the exercise by a lower body of its discretion unless it: failed to bring an unbiased judgment to bear on the issue; did not act for substantial reasons; exercised its discretion capriciously; or exercised its discretion upon a wrong principle. There is no reason why we should not apply the same approach during an application for reconsideration.”
‘Harm to the public’
Turning to Moorcroft’s application, the FST said “the mixed nature of the facts” before it did not support a finding that exonerated Moorcroft for his “admitted contravention” of the FAIS Act.
“He was aware of the requirement of the licence, including on legal advice. In addition, the insistent stance adopted by Mr Moorcroft that he did not require the licence, until his appearance at the hearing at which he conceded it was required and then stressed that it was not his intention to contravene the Act, indicates a state of mind that was deliberate or at least reckless in its disregard of the requirement of a licence until facing the tribunal.”
It said operating a MAM account without compliance with the FAIS Act “reflects harm” to the members of the public, and the amounts that were lost were probably significant to those individuals.
The FST said the R2m fine bore “a reasonable relationship” to the R2.7m that was lost in the trading activities on the MAM account.
Finally, it said the FSCA’s “inclination to deter future conduct of this nature is correctly founded” in the objectives of the FSRA.
As a result, it did not see fit to set aside the Authority’s fine and substitute it with what the tribunal believed an appropriate penalty would be in the circumstances.
Length of debarment at FSCA’s discretion
In its Notice of Administrative Sanctions, the FSCA said section 153(1)(b) of the FSRA empowers it to debar “a natural person if the person has contravened a financial sector law in a material way”. It therefore submitted before the tribunal that the debarment was justified because Moorcroft was found to have conducted unregistered business.
The FSCA referred the FST to the following statement by the Supreme Court of Appeal in the matter of Financial Services Board v Barthram and Another: “The debarment of the representative by a FSP is evidence that it no longer regards the representative as having either the fitness and propriety or competency requirements. A representative who does not meet those requirements lacks the character qualities of honesty and integrity or lacks competence and thereby poses a risk to the investing public generally. Such a person ought not to be unleashed on an unsuspecting public, and it must therefore follow that any representative debarred in terms of section 14(1) must perforce be debarred on an industry-wide basis from rendering financial services to the investing public.”
According to the tribunal, Moorcroft’s only submission about debarment was that it affected his reputation in general, although it did not affect his business model, because he had no intention to trade but on his own behalf.
The FST could not fault the FSCA’s reasons for the debarment, adding the period of the debarment was at the Authority’s discretion.
It said Moorcroft’s remedy was to apply to the FSCA in terms of sub-section 153(6) of the FSRA for a reduction or revocation of the debarment.
The tribunal dismissed the reconsideration application.
