Honesty, integrity, and full disclosure are non-negotiable requirements for individuals who intend to be key individuals in the financial services industry.
This is the key take-away from the Financial Services Tribunal’s conclusion that the FSCA was correct when it rejected a licence application because the entity’s director did not meet the Fit and Proper Requirements.
The Tribunal’s decision also serves as a cautionary tale of the potential consequences when the FSCA verifies an applicant’s disclosures and finds they don’t tally.
In April last year, Muzi Consulting Agency (Pty) Ltd applied to the FSCA for an FSP licence. As part of the process, Mziwamadoda Ignatious Mkhuma, its director, was required to disclose information about past dishonesty or regulatory action.
Mkhuma answered “yes” to questions regarding past dishonest conduct or prohibitions by regulatory bodies, but he did not provide a full explanation and supporting information.
In September, in response to a follow-up request by the FSCA, he disclosed two client complaints from 2008 and 2012 involving unauthorised insurance policies.
In the one incident, Mkhuma said the client signed an incomplete application form, which he took home to finalise based on details the client provided via phone. The policy was approved by Sanlam Skye. However, the client later reported she had not received the policy documents, nor had premiums been deducted.
Regarding the second complaint, Mkhuma explained this arose from confusion over two clients’ details, because both had the same initials and surname. Upon realising his error, he brought the clients together, apologised, and clarified the situation. Mkhuma claimed that the complainant subsequently retracted her complaint in writing.
Discrepancies in the accounts
In November 2023, the FSCA contacted Musa Properties, which had debarred Mkhuma, requesting a detailed account of the facts and grounds for the debarment.
According to Musa, a client complained to Old Mutual that Mkhuma had submitted a policy application using a forged signature. Upon investigation, discrepancies were discovered between the client’s sample signature and the signature on the policy application.
The FSCA asked Mkhuma to provide evidence of the letter allegedly written by the complainant to retract her complaint. Mkhuma said he could not locate the letter, attributing the loss to his lack of awareness at the time regarding proper document retention practices.
In December 2023, the FSCA sought additional information from Sanlam Skye, specifically requesting documents that might clarify the circumstances of Mkhuma’s debarment.
Sanlam Skye provided an affidavit by the complainant, a “Ms PMM”, and minutes of the disciplinary hearing held in October 2012.
In her affidavit, Ms PMM requested the immediate cancellation of an unauthorised stop order on her salary, saying she had not agreed to the policy.
According to the minutes of the hearing, Mkhuma confirmed he had facilitated the policy and had begun discussions with Ms PMM in November 2011. He said Ms PMM had been in a hurry when visiting his office, during which she provided all her documents, including beneficiary details. He claimed that she signed the policy but did not fully understand it because of the rushed circumstances.
Application declined
The FSCA found that the discrepancies between the information provided by Mkhuma and the information gathered from Musa and Sanlam Skye raised serious concerns about his honesty, integrity, and good standing.
It informed Mkhuma that the FSCA intended to recommend to its executive committee that his licence application be declined.
Mkhuma submitted a written response in which he apologised for providing questionable information that had raised doubts about his honesty and integrity. He acknowledged his “bad actions”, which he undertook to address.
The FSCA declined the licence application, concluding that Mkhuma had been dishonest in his account of the events, particularly regarding the discrepancies between his version of the facts and the disciplinary records.
Grounds for reconsideration
Mkhuma outlined five primary reasons for requesting reconsideration of the FSCA’s decision:
- He requested that the FSCA contact the complainant directly to verify his account of the events leading to his debarment, suggesting that such verification would clarify disputed facts.
- He emphasised that he is now rehabilitated, arguing that he has changed since the events that led to his debarment in 2012.
- He argued that his subsequent conduct demonstrated his fitness to re-enter the financial services industry, as there had been no allegations of misconduct since his debarment.
- He stated that the complainant has been returned to the position she would have been in had the misconduct not occurred.
- He alleged that the FSCA’s decision was based on incomplete findings, claiming that his request to be exempted from submitting a reference was unfairly used to justify the rejection of his application. He argued that his former employers were unwilling to assist him by providing references, which was beyond his control.
Full and frank disclosure required
The Tribunal said it was undisputed that Mkhuma answered “yes” to sections 2 and 5 of forms FSP 4B and 4D, thereby conceding that his honesty, integrity, and good standing were in question. These sections explicitly mandated him to provide a full explanation and attach all material information as annexures to his application.
Mkhuma failed to comply with this requirement, neglecting to provide full disclosure or take the FSCA into his confidence. Instead, the FSCA had to reach out to Musa Properties and Sanlam Skye to gather the necessary information.
The FSCA, having been furnished with the relevant information by Sanlam Skye, established that the information provided by Mkhuma in his licence application differed materially to that which he furnished during the disciplinary hearing. The FST said Mkhuma did not explain why he furnished misleading information to the FSCA.
The Tribunal said the FSCA was correct in asserting that Mkhuma, as a prospective key individual, would hold a critical oversight role in his company. Such a position requires full and frank disclosure and adherence to the highest standards of honesty and integrity.
Mkhuma’s conduct demonstrated a deliberate effort to conceal material information from the FSCA, casting serious doubt on his suitability for the role.
The Tribunal concluded there was no basis for it interfere with the FSCA decision, saying it was satisfied on the facts and the law that Mkhuma did not meet the Fit and Proper Requirements in respect of honesty and integrity.
