Tribunal’s decision in Brite case highlights important principles, says FSCA

The outcome of the enforcement action against Brite Advisors – previously known as deVere Investments South Africa – highlights the importance of the prohibition on FSPs soliciting investments in unapproved foreign collective investment schemes, the FSCA says.

The Authority issued a statement this week in response to the decision by the Financial Services Tribunal (FST) on 16 August. The Tribunal set aside the withdrawal of Brite’s “old” licence (No. 23719) and ordered the company to pay a fine of R3.5 million in three tranches.

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

The FSCA originally fined Brite R10m in May 2022 for contraventions of financial sector laws between 22 February 2010 and 1 August 2015. The contraventions related to deVere’s marketing of Qualifying Recognised Overseas Pension Schemes (QROPS) to British citizens living in South Africa.

Before the Tribunal was scheduled to hear Brite’s reconsideration application in May 2023, the Authority and Brite reached an agreement in terms of which the fine would be reduced to R3 665 748 and the licence withdrawal would be set aside.

“This was mainly because the management team of the entity had been completely replaced, and the FSCA is not aware of any transgression of a financial sector law since new management were appointed. In addition, the offensive product was discontinued,” the Authority’s statement said.

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.

In November 2019, Brite Advisory Holdings Limited acquired the shares in deVere SA Acuma, and the name was changed to Brite Advisors SA. This entity has operated under a different FSP licence (No. 51690) that was issued in November 2021.

The Tribunal’s decision highlighted Brite’s change in ownership, stating the contraventions that were the subject of the administrative action “do not reflect on the company as presently owned or constituted, or on its present personnel and business practices”.

Despite setting aside the licence withdrawal and reducing the fine, the FST found no reason to disturb the FSCA’s findings that Brite – as deVere – contravened the Collective Investment Schemes Control Act, the FAIS Regulations of 2003, and the General Code of Conduct.

Important principles

The FSCA said the Tribunal’s decision confirms some important principles.

First, the representatives of Brite solicited investments in foreign unapproved collective investment schemes when it interacted with its clients in South Africa. These contraventions “cannot be cured by interfacing products or entities between the customer and the offending collective investment scheme”.

Second, the decision entrenches the principle of vicarious liability. Brite attempted to distance itself from the actions of its chief executive. But the Tribunal stated: “The company is vicariously liable for the acts of its directors. That is what the FSCA had found and what the applicant had conceded. The surprising submission was that this trite principle does not apply in administrative law. Had that been the position, the whole administrative action against the Applicant would have been misplaced.”

The Authority said the case highlights the importance of the prohibition against South African FSPs soliciting investments in foreign collective investment schemes that are not approved by the FSCA.

It also highlights the risk and potential harm when an FSP, its shareholders or management place themselves in a material conflict of interest with their clients.