Background
The FSCA website, on its Enforcement Actions page, shows a huge array of fines, ranging from R161 million to as little as R18 000.
In 2013, we took up the issue of how such penalties are determined with the (then) FSB, quoting three examples where virtually the same offences were committed, but with huge variation in the ultimate enforcement action. We also asked who determines the quantum of the “penalty”, and received the following response:
“The appropriateness of an administrative sanction depends on the specific facts and circumstances relating to a specific contravention. Accordingly matters referred to the Enforcement Committee by the Registrars of the Financial Services Board (including the Registrar of Short-term and Long-term Insurance) are assessed on a case by case basis. When considering the appropriateness of the administrative sanction, the Registrar concerned takes into account, inter alia, the factors referred to in section 6D(3) of the Financial Institutions Act 28 of 2001 (“FI Act”) which could serve as either mitigating or aggravating circumstances.”
“In respect of your question pertaining to settlement agreements, please note that the Registrar (applicant) recommends the settlement amount (after taking into account the factors alluded to above). A respondent may choose to either accept the settlement amount and settle the matter in accordance with section 6B(7) of the FI Act or oppose the matter which will result in the Enforcement Committee (if it finds that the respondent contravened legislation administered by the FSB) imposing a penalty (in accordance with section 6D(2)(a) of the FI Act) which it deems appropriate. A settlement agreement concluded between the Registrar and a respondent must be filed with the chairperson of the Enforcement Committee to be made an order of the Committee. All of the matters mentioned in your email under reply were settled in accordance with section 6B(7) of the FI Act.”
Draft Procedures
The Financial Sector Conduct Authority has called for input on draft administrative action procedures aimed at
- deterring further non-compliance
- eliminating any associated financial gain or benefit and
- remedying the ‘harm caused’ by transgressions of the various laws and regulations on financial services.
According to Legalbrief Today, a three-step process is envisaged, beginning with a notice of intent – followed by ‘a reasonable opportunity to make representations, with or without legal assistance, and a final decision. However, it is proposed that, ‘under urgent circumstances’, the authority would be entitled to vary, suspend or revoke a licence without following these steps.
Pam Saxby notes, in Legalbrief, that the draft procedures are underpinned by the FSCA’s commitment to fairness, consistency, transparency and ‘maintaining an open and co-operative relationship’ with the financial institutions … it regulates’. This is noting the requirements of Chapter 6, Part 2 of the 2017 Financial Sector Regulation Act (administrative justice), the 2000 Promotion of Administrative Justice Act and the Constitution.
The authority’s final decision would include a clear statement of the consequences of non-compliance, the right to request reasons for the action to be taken and the right to apply for the decision to be reconsidered. Provision is made for a departure from this process ‘under urgent circumstances’ which would include the likelihood of ‘substantial prejudice’ to financial stability, a client, financial customers or the broader public. In such instances, the authority would be entitled to vary, suspend or revoke a licence without delay.
It is to be hoped that, should these proposals be implemented, the extent of ‘urgent circumstances’ and ‘substantial prejudice’ be clearly determined prior to such action being taken. The daily media reports of brazen skulduggery and the proliferation of warnings against entities over the last few months leaves no doubt that urgent measures need to be taken against transgressors.
There can be little doubt that there is a dire need for clarity on the possible consequences of transgressing the financial sector laws. Whether it will deter those intent on fraud is a topic for another discussion. At least, a revised and clearly defined set of rules will ensure the fair treatment of all, big and small, and fit the punishment to the crime.
