FSCA fines African Bank R700 000 for misleading advertising [VIDEO]

The Financial Sector Conduct Authority (FSCA) has imposed a R700 000 administrative penalty on African Bank for a social media advert that urged consumers to take out a personal loan as an ‘investment’.

According to the FSCA, it found that African Bank contravened Conduct Standard 3 of 2020 for banks. The Conduct Standard is a regulatory framework that enables the FSCA to critically and urgently supervise the market conduct of banks according to its mandate as outlined in the Financial Sector Regulation Act.

The Conduct Standard establishes high-level requirements that banks must adhere to, aimed at ensuring they treat their financial customers fairly when offering financial products and services.

The FSCA imposed the penalty after investigating African Bank’s #KeFestive social media campaign from December 2023 and finding that it contained factually incorrect and misleading statements. The advertisement featured a well-known public figure and encouraged consumers to take out personal loans with the phrase “It’s not a skoloto chomi! Ke investment”.

This is the advert that was flighted on TikTok:

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FSCA found African Bank advert misrepresented nature of loan product

During the investigation, the FSCA found that this statement was factually incorrect and misleading as it misrepresented the nature of the loan product offered, implying that it was an investment rather than a credit facility.

The FSCA says that by misleading financial customers and failing to provide clear and accurate information about the nature of the product, African Bank contravened sections 6(1), 6(3)(a) and 6(3)(b) of the Conduct Standard.

Section 6(1) requires that banks must ensure that its financial products and financial services are advertised to financial customers in a way that is clear, fair and not misleading, while section 6(3)(a) requires that bank’s advertising must be factually correct and not contain any statement, promise, or forecast which is fraudulent, untrue, or misleading.

In addition, the FSCA found deficiencies in African Bank’s governance and oversight processes regarding the review and approval of the advertisement. This was a contravention of section 6(9) of the Conduct Standard, which requires that banks must have processes and procedures in place for the approval of advertisements and advertising methods.

A senior person with expertise within the bank must approve advertisements, and this must form part of its governance arrangements.

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African Bank cooperated and already paid the FSCA fine

The FSCA points out that African Bank cooperated during the investigation and took prompt remedial action to comply with the Conduct Standard. Considering the nature of the contravention, as well as the remedial steps African Bank implemented, the FSCA suspended R200 000 of the R700 000 for two years, subject to the bank remaining fully compliant with the Conduct Standard.

African Bank has already paid the remaining fine of R500 000.

The FSCA urges all financial institutions to take note of this sanction and reminds them of the importance of providing clear and accurate information to financial customers regarding the nature of the products and services they offer.

“For many financial customers, advertising and marketing material significantly influence their decisions about which financial products to buy. Financial customers who rely on misleading adverts or false impressions are more likely to select unsuitable products, which could result in financial losses or other prejudicial outcomes,” the FSCA says.

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Banks must be careful not to position credit as investments

In this case, positioning the product as an investment rather than a credit product, financial customers were misled about the longer-term risks and potential costs associated with taking up the product.

“Financial institutions must have robust internal governance and approval processes to ensure compliance with all requirements of the Conduct Standard, including the development and publication of marketing material and other key information disclosed to customers.”

The FSCA states that it will continue to take firm regulatory action against financial institutions that do not prioritise the fair treatment of customers across their governance arrangements, business processes, and procedures.

“The administrative penalty imposed in this case serves as a reminder that misleading advertising will not be tolerated, particularly as financial customers increasingly find themselves under pressure to make important decisions regarding their future financial resilience and well-being.

“Fair customer treatment is integral to maintaining public trust and confidence in the integrity of the financial system,” the FSCA says.