No doubt it was unintended, but the decision by Sekunjalo CEO Iqbal Survé to create a public event around the Financial Sector Conduct Authority’s (FSCA’s) raid on his offices will have helped considerably to enhance the regulator’s reputation.
The by-now famous two-minute video propelled the financial markets’ regulator to centre stage and provided the public with a much-needed reminder of the possibility of consequences.
It’s not as the FSCA would have wanted it. The regulator prefers a lower profile and last week reminded journalists that search-and-seizure operations, which are not undertaken lightly, are aimed as much at exoneration as conviction. Amid all the videoed bluster it was easy to forget that Sekunjalo has not been found guilty of any wrongdoing.
The FSCA’s trip to Survé’s head office was the third high-profile event of this once painstakingly slow-moving regulator, headed by commissioner Abel Sithole, which previously seemed as fearful of publicity as it was of reaching a verdict. In September it levied its highest fine — R53m on Steinhoff — and just days later slapped a R100m fine on Met Collective Investments.
This is heady stuff given that until Steinhoff the largest fine the FSCA, or its previous incarnation the Financial Services Board, had levied was R30m on Harmony Gold in 2018 for releasing false and misleading information back in April 2007. Before that it was R24m levied in 2004 on Deutsche Bank for insider trading in Datatec shares during 2000. Not exactly persuasive evidence of a regulator determined to protect the public and uphold the integrity of the financial markets; we shouldn’t assume our financial markets were without blemish.
At a time when South Africans are being inundated with evidence of devastating wrongdoing by its leaders, the FSCA’s apparently tougher new approach is to be welcomed. Looking on as time and again political and business leaders walk away seemingly untouched from the wreckage they have caused does incalculable damage to society. Without a belief that the powerful and wealthy are accountable there is little reason for any of us to adhere to the rules and norms needed to bind that fabric.
Regulators such as the FSCA are ideally positioned to fire the warning shots that remind us there is some hope that the powerful will be held to account; much as the competition authorities have done with regard to companies that have abused their market power. They dispense administrative justice which, without the overwhelming burden of proof required in criminal cases, means they are far better suited to dealing with corporate malfeasance.
The reality is, as one leading corporate lawyer noted, it is extremely difficult to pin down white-collar crime particularly when the accused have access to almost unlimited funds for lawyers. That reality will become apparent when, in the years to come, former Steinhoff CEO Markus Jooste is never found guilty of a criminal offence.
Regulators are able to levy administrative fines on the much less burdensome “balance of probabilities”. The size of the fine, which must be “rational”, is often the outcome of engagements between the parties, as in the Steinhoff case where the initial headline-grabbing R1.5bn was reduced to R53m. The R1.5bn, more appropriate in the context of the R155bn overstatement of profits, would have penalised innocent shareholders who had already lost almost everything.
Inevitably, the FSCA’s more robust approach is not universally welcomed. While many South Africans believe the regulator should be even tougher, some corporate executives and lawyers fear it relies on bullying and inconsistent tactics.
Momentum Metropolitan, which had oversight of the Met Collective Investment fund that lost 66% of its value in two days in December 2015, is challenging its R100m fine. It says the size of the penalty is entirely disproportionate with the alleged breaches and inconsistent with previous industry penalties. It will appeal to the Financial Services Tribunal in a process that is, unfortunately, held behind closed doors. If unsuccessful there they then have the option of going to court.
As a powerful regulator, it is important the FSCA is held to account and that it operates in a rational and predictable manner. But also important is that corporate executives are aware the public is heartily sick of the lack of consequences for wrongdoers in business as much as in government.
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