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New head of FSCA investigations wants action

Regulator aims to be more proactive.

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.

Read: 10 lines on a piece of paper

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.”

More efficient

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.”

Better communication

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.”

Read: FSCA clears Resilient companies of insider trading

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.’

To raise a complaint with the FSCA, email info@fsca.co.za

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Dear FSCA – well done on nabbing Dian Goosen in Cullinan. Now, there’s an asset manager in Pretoria called the Public Investment Corporation. They’re a registered Financial Services Provider (FSP), so you’re their regulator. They’ve been a bit naughty with their client’s money, investing into some dodgy deals like AYO Technologies. Are they one of your 13 investigations?

Or are you worried because the PIC is owned by the SA government, and answer to the Minister of Finance, who is actually your boss! Maybe you could use some of those great conflict of interest regulations that you expect the rest of us to adhere to, to resolve the problem.

You might also want to know that the PIC’s client is the Government Employees Pension Fund. So the money they’ve been a bit naughty with is probably yours…

The Twin Peaks regulations force the criminals out of the financial industry into the government. The FAIS act and the FSCA regulates Key Individuals, Compliance Officers and Representatives of Financial Service Providers. Participants must prove to be fit and proper, to have an operational ability, to be competent and to act in the best interest of clients.

Senior politicians and government officials do not need to comply with any of these criteria. Therefore, people who want to steal don’t even consider the Financial Industry, they go straight into politics or apply for a job at an SOE or municipality.

As a matter of fact, the ANC and government organisations actively select for the most unscrupulous and criminal members of society. Only the most unsavoury characters, who are willing to condone or participate in the looting, will receive promotions. Honest people who contribute to society don’t get promoted and get abandoned.

Now my question is this – why can the selection process for senior politicians, ward counsellors and the management of SOE’s not be the same as for regulated officials in the financial industry? What is the use of having the best financial regulations in the world, when the authority higher up in the chain of command, the government, is the most criminal in the world? South Africa has the best-regulated financial market in the world and the worst-regulated politicians in the world.

I found the answer to my question – If we apply fit and proper and competency requirements to politicians, we won’t have any.

You raise a good question but looking at the experience in other countries indicates that the criteria one would think relevant do not apply.

E.g. one of the worst USA presidents, G Bush is the only MBA, Bill Clinton, the only Rhodes scholar was caught with his pants down, while Trump, who marketed himself as a businessman and negotiator, created the worst “shutdown” in US history. In SA Louis Botha, general turned prime minister — with at most Std 3 education — unified the previously warring white tribes while the highly educated Jan Smuts (Stellenbosch and Cambridge) lost the country to apartheid in 1948; IQ vs EQ. Mbeki was one of the most capable administrator-presidents since 1994 but without Mandela as “front man” (effectively Mbeki was his prime minister/Chancellor) he lost out to the populist Zuma. Despite his legal training, Ramaphosa was Zuma’s deputy and collaborated in the looting and cover-up.

Churchill and Zille were journalists, not the training one would expect for running a country or province.

In any case, persuading the majority of the electorate to disenfranchise themselves is a non-starter. The solution may lie in the ANC’s own research: that education, especially critical thinking, turns people away from them.

They have doubled their one dept. with up to 60? Whether FSB or FSCAABC, or ABCDDEFG etc. they are there for those lucrative fees they extort (ahem) charge from assurers. R 6 billion Rand a year and counting. The PIC debacle so very well pointed out above in previous comment also shows that the FSCA is a bit or a muzzled pooch when it comes to their “own”. But at least the all policyholders & brokers/advisors and get to foot the bill with the FSCA’s onerous compliance BS.Yet another fine example of how government is strangling the life out of business RSA so that back pockets and offshore bank accounts can be filled. Yet another hidden tax as well.

All sounds wonderful, and the more money you throw at it at the cost of the consumer the more effective you will become, not necessarily efficient though. The one question the consumer must ask and the regulator must answer: Has the cost of regulation and supervision been benchmarked, if share your insights of the benchmarking exercise. In Namibia the cost of regulation per regulated person is around 8 times what it is elsewhere in the developed world while the regulated capital is about one-twentieth of that in the developed world. Expressed differently, cost of regulation as % of GDP is 25 times it is elsewhere and per capita it is more than twice that elsewhere. I hasten to add that it is very difficult to compare apples with apples as every regulator has a different mandate but perhaps amongst the regulators in the world they need to come up with a way to compare in the same way the financial services industry is required to standardise their costs so that a meaningful comparison becomes possible. Surely the regulator must lead by example?

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