Tribunal rules on Brite’s application to reconsider R10m fine and licence withdrawal

The R10 million fine imposed on Brite Advisors South Africa (Pty) Ltd – previously known as deVere Investments South Africa – has been reduced to R3.5m in terms of a decision handed down by the Financial Services Tribunal (FST) this week. The Tribunal also set aside the withdrawal of Brite’s “old” Category I and II FSP licence.

The FSCA had agreed to reduce the fine and set aside the withdrawal of the licence before the Tribunal was scheduled to hear the matter in May 2023. Brite subsequently filed “supplementary” reasons in which it contested the merits of the findings on which the Authority’s administrative action was based.

The Authority imposed the sanctions in May 2022 following an investigation which found that Brite – as deVere – contravened various financial sector laws from 22 February 2010 to 1 August 2015. At the time of the contraventions, Brite was known as deVere Investments South Africa (Pty) Ltd and then as deVere SA Acuma (Pty) Ltd. It was a subsidiary of the deVere Group, an international wealth management company founded by Nigel Green.

According to the FSCA, deVere contravened the following laws:

• Section 65(3) of the Collective Investment Schemes Control Act (Cisca) and Condition 6 of deVere’s licensing conditions by promoting and soliciting unapproved collective investment schemes via Qualified Recognised Overseas Pension Schemes (QROPS).
• Regulation 3(a) of the FAIS Regulations of June 2003 by not disclosing the fees in respect of the QROPS.
• Sections 2 [charging the QROPs clients excessive fees], 3A(1)(b)(ii), 3(1)(a)(vii), (b) [conflict of interest], 7(1)(c)(iii)(bb), 9(1)(a) to (d) [record keeping], and 21 [waiver of rights] of the General Code of Conduct.

In November 2019, a foreign company in the Brite Advisors Group acquired the shares in deVere SA Acuma, and the name was changed to Brite Advisors South Africa.

Brite operates under a new FSP licence issued in November 2021.

In January this year, the FST set aside the R2.5m fine imposed on Green, as well as his five-year debarment. Green was a non-resident director of deVere SA from 2008 to 2015.

Read: Tribunal rules on former deVere director’s application against R2.5m fine

Concessions were made

In July 2022, Brite lodged an application for the FSCA to reconsider the sanctions.

According to the Tribunal’s decision, at that time Brite did not contest the findings by the FSCA that under its previous names (and owned by another shareholder and run by other individuals), it had contravened the financial sector laws.

Brite also did not dispute the merits of the findings as to the contraventions, mainly because it could not comprehensively address them, as the impugned conduct took place years before its new shareholder, current board, and management were installed.

Brite asked for the fine to be reduced to no more than R3 665 748 and for the licence withdrawal to be set aside.

It said a fine of R3 665 748 equated to Brite’s relinquishing its full profits for the year to the end of December 2021. It submitted this would enable the FSCA to demonstrate “a robust but fair approach to the fair treatment and protection of financial customers, balanced with the safety and soundness of financial institutions”.

The FSCA agreed to the proposed relief. The Tribunal said the concessions recognised that the contraventions that resulted in the administrative action were not a reflection on the present company, its personnel and business process.

Change of heart

Then in April this year, Brite filed supplementary reasons for the FSCA’s actions to be reconsidered, along with an application for condonation for late filing.

According to the Tribunal, the supplementary reasons indicated that Brite had reversed its position. It rejected the FSCA’s “acceptance” of its “offer” and disputed the merits of the findings as to the contraventions, which was in direct conflict with its reconsideration application.

The FST said counsel’s reasons for the change of change of heart were:

• Consideration of the record received in August 2022 revealed that despite its earlier attitude of not contesting the merits of the findings by the FSCA, there were fundamental grounds upon which the findings could and should be challenged.
• When Brite brought its reconsideration application, it did not know that the findings in South Africa would damage its reputation to the extent that its fellow group companies would lose prospective clients and transactions in overseas jurisdictions.

The Tribunal said the first consideration was, subject to one possible qualification, without merit. The “fundamental grounds” had been raised by deVere to Brite’s knowledge and debated at length with the FSCA and were dealt with by the Authority in its determination. The “one possible qualification” related to the FSCA’s jurisdiction in terms of Cisca.

The FST said the second consideration was not really new. Brite knew that the FSCA’s decision could or would have adverse consequences on its business and the business of its associated companies. The extent may have surprised Brite, but the threat was always there, and it had been recognised in the reconsideration application filed in July 2022.

The jurisdiction issue

deVere marketed QROPS to its clients, who were British citizens living in South Africa who had “frozen” pension benefits in the United Kingdom.

To qualify for a QROPS, UK citizens had to be resident outside their home country. Before April 2006, these expatriates could not transfer their UK pension to another country. After April 2006, UK pension benefits became transferable to certain countries.

With the assistance of deVere, its clients invested in the QROPS, effectively transferring their pension benefits to either Gibraltar or Malta. These investments provided tax and investment benefits.

Brite submitted that QROPS were offshore pension benefits and therefore did not fall within the FSCA’s jurisdiction. It questioned whether the Authority’s regulatory reach, in terms of Cisca, extended to UK pension funds and structures, held offshore, and permitted and regulated by UK and European Union law.

But the Tribunal said section 65(3) of Cisca is not concerned with the regulation of foreign platforms and structures. It simply states that one may not in South Africa solicit investment in an unapproved – under sub-section (1) – foreign CIS. Anyone who wants to solicit such investment must obtain prior approval from the FSCA.

“Beneficiaries of QROPS in South Africa were free to invest in unauthorised foreign CISs – to solicit them to do so in South Africa is another matter. Whether those structures were subject to foreign regulation is also irrelevant,” the FST said.

Solicitation of investments

It therefore agreed with the Authority that the question was not whether the FSCA had jurisdiction over or regulated QROPS or the unapproved collective investment schemes, but whether deVere solicited or promoted investments in unapproved collective investment schemes (CIS).

In this respect, the Tribunal found that documentary evidence supported the FSCA’s contention that deVere advised its clients to invest their pension funds with the QROPS companies (creating individual pension trusts) and facilitated the process. deVere also advised its clients on the unapproved CIS investments and facilitated this process.

The evidence showed that deVere recognised it is a criminal offence to solicit unapproved foreign CISs in South Africa. “Ultimately, we have to rely on the pension trustees (as they are ultimately owners of on the funds on behalf of the member) and the member themselves to decide on the bond and investment funds,” a document titled “Summary of South Africa legislative environment and impact on deVere operations” stated.

But the FST quoted from another document, titled “Group commission schedule”, which showed that commissions were levied for providing advice on the underlying investments.

The tribunal’s order

The FST found the FSCA had “conceded” before the hearing that the licence withdrawal should be set aside. The Authority had expressed its satisfaction with the changes at Brite by, among other things, issuing licences to the “same people” under Brite, #2, a parallel company. The Tribunal said remitting the licence withdrawal decision to the FSCA would be a fruitless and wasteful exercise.

The FSCA had, for similar reasons, conceded that the fine of R10m could not be justified.

Remitting the penalty would be “an exercise in futility”, particularly because the Tribunal had not upset any material finding of the Authority.

The FST, however, exercised its discretion in the context of the factors listed in section 167 of the Financial Sector Regulation Act and set aside the R10m penalty and replaced it with a fine of R3.5m. The fine is payable in three tranches: R500 000 on 31 August 2023; R1.5m on 30 November 2023; and R1.5m on 28 February 2024.

The FSCA asked for a costs order in its favour, saying Brite’s “last-minute substantive and reinvention” of its case required the Authority to expend significant additional resources to respond.

The Tribunal ordered Brite to pay the FSCA’s legal costs, including the costs of two counsel, on the High Court scale and incurred from 26 April to 26 July 2023.

Click here to download the tribunal’s decision.