Two key directors at Ecsponent Financial Services (EFS) – Floris Slabbert and Anton Hay – have been debarred by the Financial Sector Conduct Authority (FSCA) for a period of two years, the regulator announced on Friday.
“This enforcement action follows the withdrawal of EFS’s licence [FSP number 32968] for breaching several financial sector laws. It is the view of the FSCA that Slabbert and Hay contributed significantly to the breaches,” the FSCA said in a statement.
EFS is a subsidiary of beleaguered JSE-listed private equity group Ecsponent Limited. Following the withdrawal of EFS’s financial services licence earlier this month, its parent group said that the subsidiary will be closed.
“On June 4 2020 the FSCA withdrew the licence of EFS, having found that the company did not conduct suitability testing before selling a product to clients. The FSP used a network of representatives to market the shares of its parent company, Ecsponent Limited, which raised capital through the sale of redeemable preference shares,” the regulated noted.
“During interactions with potential clients, EFS staff provided advice on the investment product, i.e. the classes of preference shares. While the classes of shares that paid monthly dividends were popular amongst pensioners as they mimicked a monthly pension payment, the one major difference between them and a pension investment was that they exposed investors to more risk,” it added.
The FSCA said that its investigation entailed extensive interaction with EFS.
“The FSP [EFS) was of the view that it was not required to conduct suitability testing and relied on a specific financial service agreement wherein the investor instructs the advisor or intermediary not to perform a comprehensive financial needs analysis, but to render a specific financial service. EFS argued that by signing the agreement, the investor understood that a full analysis would not be undertaken by the advisor,” the FSCA pointed out.
“The FSCA held that such an agreement was unlawful, and that EFS could not rely on it. The authority also found that EFS was in breach of suitability standards expected of FSPs as outlined in the FAIS General Code of Conduct (section 8 of the Code). The FSCA encourages FSPs and key individuals to always act in the best interests of their clients and treat them fairly,” it added.
Ecsponent Limited noted the FSCA’s latest ruling in a brief JSE Sens statement on Friday afternoon.
“The company and EFS consider the FSCA’s investigation, which focused solely on the advice and intermediary activities of EFS and not those of Ecsponent, to be finally concluded and regards the matter as closed,” it said.
Ecsponent Limited reiterated that EFS “has not provided financial advice on any new business” since 11 February 2020 and the group’s decision to “unwind EFS”.
In a separate press statement, the group’s new board and executives also welcomed the conclusion of the matter and highlighted that the FSCA had not imposed any administrative penalty against the EFS directors.
George Manyere, Ecsponent Limited’s CEO commented: “The FSCA’s determination and ruling brings this protracted matter which has been running for the past seven years to a close. As a new management team of Ecsponent Limited which is a shareholder in EFS, our focus remains on proactively managing our underlying assets in order to both protect and sustainably grow shareholder value over the long term.”