The Financial Sector Conduct Authority (FSCA) has withdrawn the licence of Ecsponent Financial Services (EFS) and imposed a R3m fine related to how it was selling and marketing the preference shares of its holding company.

The investigation related to the selling by EFS of high-risk preference shares in its listed parent group, Ecsponent.

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 adviser 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 adviser.

The FSCA determined that this agreement was unlawful. “While the classes of shares that paid monthly dividends were popular among 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,” the FSCA statement read.

“We welcome the final outcome from the FSCA with regards to EFS’s licence and business in which Ecsponent Ltd is the sole shareholder,” said Ecsponent CEO George Manyere.  “This brings to conclusion a legacy issue and protracted investigation by the FSCA of more than seven years.” 

In afternoon trade on Friday, Ecsponent's share price was down 20% to 4c, which is not an unusual move for the share, which has lost almost 92% of its value over the past two years.

Update: June 5 2020 
This article has been updated with comment from Ecsponent.


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