A decision this week by the Financial Services Tribunal (FST) highlights that financial services providers must ensure their representatives render services only in respect of the product categories for which they are authorised.
The decision is the outcome of a reconsideration application brought by Wenru (Pty) Ltd, an insurance brokerage in Middelburg, Mpumalanga.
In September last year, the Financial Sector Conduct Authority imposed an administrative penalty of R1 million on Adell van Wyk, who was a director and representative of Wenru until her resignation in 2020. Van Wyk was also debarred for instructing Wenru to process payments without a client’s consent.
Read: Middelburg broker slapped with R1 million fine and 15-year debarment
The FSCA also issued a directive and imposed a penalty of R100 000 on Wenru for failing to observe the utmost good faith and exercise the required care and diligence.
The client in question became entitled to R3 828 845 in proceeds from a life insurance policy following the death of her life partner, and an Investec Corporate Cash Manager (ICCM) account was opened to receive these funds.
Wenru was represented by Van Wyk and another director, Jan Petrus Wentzel.
Van Wyk was authorised to provide services related to long-term insurance, pension benefits, collective investment schemes, and health service benefits.
Wentzel, her brother-in-law, held broader authorisations, including structured deposits, shares, debentures, and short- and long-term deposits. Unlike Van Wyk, Wentzel was authorised for categories encompassing the advice pertaining to the ICCM account.
In August 2018, Van Wyk Attorneys – a firm run by Van Wyk’s husband where she assisted part-time – instructed Wenru to transfer R3.5 million from the ICCM account to the firm’s trust account. The client signed a consent letter, but the instruction originated from Van Wyk.
Between 2018 and 2020, additional payments were made from the account. In 2020, the client lodged a complaint with Investec, alleging that R161 890.20 had been withdrawn without her authorisation. This prompted an investigation by the FSCA.
FSCA’s findings
In December 2023, the FSCA informed Wenru of its intention to consider certain contraventions and impose administrative sanctions. After considering Wenru’s representations, the Authority finalised its decision in September 2024, dropping some charges but upholding others.
The upheld contraventions were threefold:
1. Section 13(1)(g) of the Fit and Proper Requirements
Wenru failed to ensure that Van Wyk did not provide financial services for which she was not authorised. The evidence showed that Van Wyk, not Wentzel, advised the client on opening the ICCM account.
2. Section 3(1)(e) and 10(1)(e) of the General Code of Conduct and section 2(b) of the Financial Institutions Act
Wenru did not obtain the client’s consent before making payments from the ICCM account. The Authority rejected Wenru’s defence that it acted in good faith and due diligence.
3. Section 11 of the General Code
Wenru did not have proper resources, procedures, or technological systems to eliminate risks to the client and prevent Van Wyk’s misconduct. The Authority dismissed Wenru’s attempt to “blame” the client, who did not question the payments after receiving monthly statements. It said Wenru failed to operate the ICCM account according to the agreed mandate, despite Wenru arguing that instructions from the attorneys absolved them.
Tribunal’s analysis
Wenru’s application for reconsideration required the Tribunal to address two questions. Did the FSP contravene the Financial Advisory and Intermediary Services Act and its subordinate legislation? Second, was the FSCA justified in imposing the directive and penalty?
The Tribunal’s decision, rendered without a formal hearing at the parties’ mutual request, leaned heavily on the FSCA’s evidence and legal reasoning.
The Tribunal affirmed that Van Wyk acted as the client’s financial adviser, advising on the ICCM account despite lacking authorisation for deposit-related products. Wentzel, the sole account operator, executed Van Wyk’s instructions rather than the client’s, breaching the mandate and exposing the client to misappropriation risks – a violation of section 11 of the General Code of Conduct.
Regarding the penalty, section 167 of the Financial Sector Regulation Act governs administrative penalties, requiring the FSCA to consider factors such as the nature, duration, and extent of the contravention; the loss or damage suffered; and the FSP’s co-operation.
Wenru did not contest the penalty quantum, and the Tribunal observed that the FSCA’s approach eschews a rigid formula, aligning with established precedent that penalties are discretionary within statutory bounds.
The Tribunal concluded that the FSCA’s reasoning was sound on both liability and sanction, finding “no grounds to interfere” with the directive or penalty order. Wenru’s application was dismissed.
