When South Africa decided to adopt the ‘Twin Peaks’ approach in the financial sector, one of the motivations was that it would allow for more proactive regulation. Separating the Prudential Authority from the Financial Sector Conduct Authority (FSCA) would give the latter more power to prevent abuse.
Part of the change in approach is that the FSCA’s investigations and enforcement capacity has been established as a division in its own right. This is a fundamental change from how investigations took place within the Financial Services Board (FSB).
The newly appointed head of the division, Brandon Topham, explains that, previously, investigators had to be instructed by another division at the regulator to look into something. Now, however, they have the authority to monitor and investigate the sector without this first having to be approved elsewhere.
The size of the regulator’s investigative team has also doubled to around 60 members.
“In the old FSB, this department was much smaller,” Topham explains. “It was a support service for the FSB. With the change in legislation, the importance of being proactive and not just reactive has become emphasised, which is why we have established a separate division within the FSCA.”
Topham is determined that these changes will make their investigations, and the enforcement actions that may follow, more efficient.
In a recent example, the regulator was able to act within just one week of receiving a complaint against Dian Goosen, a licenced representative in Cullinan who was misappropriating clients’ funds. Having scrutinised what he was doing, the FSCA conducted an early morning search and seizure operation at his premises.
This is obviously not possible in every case, but Topham believes that the regulator can, and should, move more quickly when the public is at risk.
‘I don’t have all the answers yet, but I do suspect that we have a number of cases that we have been working on for too long,’ says Topham. ‘The judgement call needs to be made faster.’
This is both in terms of finalising an investigation where wrongdoing has been identified, but also in closing those cases where nothing has been found. Where these matters are public, this also means communicating these decisions in good time.
“As soon as the public is at risk, there will be some announcement,” he says. “But we have to be certain. We can’t create a run on a bank, financial service provider or insurance company just because we are doing an investigation. Only when the public is at risk and we have enough basis to believe that accusations are valid will we communicate something. Once it is in the public domain we will give updates.”
This marks a change from the way the FSB operated in the past, as previously the regulator would only make a public announcement once all the matters relating to a particular case were finalised.
The current investigations into allegations around Resilient real estatement investment trust (Reit) and related companies provide a good example. The FSCA is presently looking into 13 different matters, and would in the past not have communicated any findings until all 13 were complete. However, last week the regulator confirmed that it had closed investigations into four of them.
“There are three Resilient cases on insider trading that we have closed,” Topham explains. “There is also a fourth that had to do with market and price manipulation. Based on the investigations we have done, we couldn’t find anything wrong.”
He believes the FSCA has an obligation to issue more regular updates like this going forward where matters are in the public domain.
“If there is a risk, it stays out there,” he says. “But if we don’t find anything, we have to clear the company as quickly as possible.”
Working with the NPA
Significantly, Topham also wants to see close cooperation between the FSCA and the National Prosecuting Authority (NPA). There are a number of cases that the regulator has investigated and identified potential criminal activity, but the matters either take many years to get to court or no criminal conviction is obtained.
“We want to help, as we have a mutual interest in the matters,” Topham says.
He believes it is essential for the public to see that there will be consequences for breaking the law. Since the FSCA has no powers to institute criminal prosecutions itself, it has to work closely with the NPA where this is warranted.
‘We are appointing a person to just liaise with the NPA and police investigators to help them with criminal prosecutions,’ says Topham. ‘We are bringing in a very experienced prosecutor to help provide them with the information which they may require in order to obtain convictions.’
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