ALLAN GREENBLO: Financial Sector Conduct Authority faces crisis of credibility
Cloud hangs over regulator after public protector’s report on ‘maladministration’
Amid the revelations of capture and corruption at state agencies, it would have been a relief to discover that it least one is unblemished. But now there’s a cloud of “systemic corporate governance deficiencies” over even the Financial Sector Conduct Authority, or FSCA (formerly the Financial Services Board, or FSB).
The cloud has been created by public protector Busisiwe Mkhwebane’s report on allegations of maladministration, abuse of power and improper conduct by former FSB executive officer Dube Tshidi. So damning are her conclusions that the FSCA has no choice but to take the report on review.
If the report’s findings are allowed to stand – they may or may not, partially or fully, depending on the review’s outcome – the damage to the credibility of the FSCA would be indelible. And this for a new body, the successor to the FSB, charged with supervising the financial sector’s market conduct and regulating retirement funds.
Here is a test for the efficacy of the public protector’s supervision of the FSCA’s supervision; a salutary instance of the guardian’s guardian. Tshidi is a member of the FSCA transitional management committee, set up to smooth the transition from FSB to FSCA. While the cloud hangs, and Tshidi isn’t suspended from the committee, the intended smoothness can roughen.
The report represents a storm cloud already broken by the fact of publication. Whatever happens with the review, there’ll be a time delay for the mud to stick. The National Treasury, midwife to the FSCA, should think harder than the review for remedy to the reputational damage done.
Some proactive suggestions:
- Say good-bye to Tshidi. He’s way beyond retirement age and, for avoidance of interest conflicts, shouldn’t be near the committee that makes decisions about a report largely centred on his behaviour;
- Explain whether legal fees for the review will be paid by the FSCA (funded by levies on regulated institutions, including retirement funds) or by identified parties in their personal capacities;
- Conduct an independent inquiry into the circumstances by which many millions of rand were claimed respectively from Old Mutual, Sanlam and Alexander Forbes, and how these monies were disbursed; and
- Commission a forensic audit that will quantify the amounts paid to attorney Tony Mostert and his law firm in respect of the fund curatorships for which he’d been appointed, and disclose these relative to the benefits received by the numerous funds.
The report avers that, by 2011, Mostert and his firm had earned some R240m over the previous six years. The fees earned after 2011, it’s submitted, are not known because Mostert and Tshidi “steadfastly refused to make any disclosure whatsoever”. During the entire period up to now, might something around R400m – give or take a few tens of millions – sound too outrageous a guess?
For the FSCA, reliance on the review carries risk. In court actions, outcomes are uncertain until arguments are adjudged. And the arguments of the FSCA might well be countered in defence of the public protector. The FSCA has applied for review on grounds that the report is “riddled with inaccuracies” and “did not take into account any of the submissions made”, accusations that the public protector has yet to respond to.
In the FSCA’s favour is Mkhwebane’s shoddy record. But this 96-page report seems different. It’s accompanied by an extensive list of documents examined and interviews held by her. In response to the allegation by Tshidi that the public protector had not heard evidence under oath and that hearsay remained untested by cross-examination, she insisted: “I follow an inquisitorial process in my investigations.”
Presumably, she’d been well fed by representatives of Simon Nash, whose criminal trial for the stripping of pension fund surpluses has entered its ninth year. Tshidi and Mostert contend that the real complainant to the public protector was Nash, rather than EFF leader Julius Malema, which Mkhwebane has dismissed as “immaterial”.
Against the FSCA is the risk of what might emerge during the review proceedings. Among the landmines possibly lying in wait are a report by investigator Paul O’Sullivan, supported by financial statements of the AL Mostert law firm, as well as legal examinations of the Public Finance Management Act and the Inspection of Financial Institutions Act in the context of suspected collusive activities.
Mkhwebane’s key findings include:
- Improprieties and/or irregularities in the nomination of curators by Tshidi;
- A failure by Tshidi to discharge his regulatory duty “to properly manage the possible or perceived conflict of interest between Mr Mostert’s role as curator and the appointment of his own law firm to assist in the administration of pension funds placed under curatorship”; and
- When written questions were posed to the minister of finance, the answers that Tshidi provided had caused the minister to mislead parliament.
Substantiating the broad complaint of improper conduct, the report says: “Due to the nature of the position that [Tshidi] held, he was required to always act with the utmost integrity and in a manner which encouraged a high level of ethics and trust. As the ‘face’ of the Regulator, he was required to hold himself to a higher standard than those that he regulated.”
Under the circumstances of such a wallop, Mkhwebane has come up with remedial actions that seem surprisingly mild: there should be a wider pool of prospective curators to draw from through a competitive and transparent bidding process; and the FSCA should adopt a policy to regulate the nomination process of curators.
These are hardly bombshells requiring review. Neither is the remedial action that the FSCA commissioner – Abel Sithole, who also chaired the FSB board – should take “corrective action against the officials implicated in this report and [put] in corrective measures to avoid recurrence”. The officials and measures aren’t specified.
That’s so up in the air, especially with no attempt to follow the money. The excitement will be in the review process when the FSCA’s defence of its reputation is put to the test. Until then, Mkhwebane has handed a victory to Malema.
• Allan Greenblo is editorial director of Today’s Trustee (www.totrust.co.za), a quarterly magazine mainly for the principal officers and trustees of retirement funds