FSCA’s Regulatory Actions Report shows impressive numbers of enforcement

The FSCA’s Regulatory Actions Report for the previous financial year shows impressive numbers of enforcement actions taken by the regulator to protect consumers and their money, including R943 370 568 in administrative penalties to 31 people, a significant increase from the previous year’s R100 million imposed on 44 people.

The Financial Sector Conduct Authority (FSCA) report details a number of enforcement interventions, including 156 debarments, 104 public warnings, 41 enforceable undertakings, the suspension of 1 061 licences and the withdrawal of 75 licences.

According to the report, the FSCA also fully investigated 418 cases and handed them over to various law enforcement agencies.

These included highly publicised cases, such as the prosecution of Craig Warriner from the BHI Trust, who received an effective 25-years sentence for fraud and unregistered financial services business. The FSCA also debarred him for 30 years.

ALSO READ: FSCA bans Craig Warriner from BHI Trust for 30 years

Other enforcement actions by FSCA

The FSCA registered 483 new investigation cases, finalised 418, with a 20% increase in ongoing cases to 375. The majority of new cases related to potential misconduct in the FAIS and Insurance sectors.

The regulator noted that unauthorised FAIS business and fraud involving the FAIS regulatory examinations accounted for 61% and 8% respectively of the FAIS investigations. Most of the insurance investigations involved unregistered funeral policy insurance businesses.

In addition, the FSCA suspended the licences of 1 061 Financial Service Providers, withdrew 75 licenses and debarred 156 individuals. The FSCA noted that 97% of the suspensions were due to non-submission of statutory returns and/or non-payment of levies. In 58% of the suspended cases, the suspensions were lifted after the financial institutions rectified their non-compliance.

The FSCA also published 104 public warnings and took 1 323 administrative actions.

ALSO READ: FSCA fines Markus Jooste R475 million, refers case to Hawks

Administrative penalties with some significant amounts levied by FSCA

In addition, the regulator imposed administrative penalties of about R943 million. Significant penalties included:

• R475 million to Steinhoff’s Markus Jooste for market abuse contraventions
• approximately R216 million to Coenraad Botha from CBI X and
• R143 million to Jacobus Geldenhuis from Classic Financial Services One.

There has also been a significant increase in the value of penalties imposed for Anti-Money Laundering / Countering the Financing of Terrorism contraventions as illustrated by the R16 million penalty on Ashburton Fund Managers.

According to the report, the substantial increase in the value of administrative penalties is primarily due to the FSCA’s approach to enhance effective deterrence, where a penalty must reflect the nature, seriousness and extent of the misconduct, the harm caused to financial customers and the extent of financial benefit to the investigated party.

Additional material factors considered in determining the quantum of the penalty, is the extent to which the conduct was deliberate or reckless and the cooperation or lack of it by the investigated party.

ALSO READ: FSCA fines Coenraad Botha from CBI X R216 million and debars him

Cases of soliciting deposits, contravening the Banks Act

The FSCA also dealt with several cases regarding solicitating deposits from members of the public in contravention of section 11 of the Banks Act that amounts to illegal deposit taking or unlicensed banking business in cases where it related to so-called Ponzi schemes.

The regulator dealt with two of these cases in the past financial year. The first was the investigation into Geldenhuis from Classic Financial Services.

The second case was the investigation into My Wealth Method that resulted in a penalty of R58 739 075 and another of R15 065 852 for an associated entity, called My Wealth Dias, for breaching the Banks Act.

In these cases, deposits were solicited from members of the public under the guise that their deposits would be used for investment purposes into some form of financial product.

In some cases, this did not happen, or an insignificant amount was invested in a financial product, while the balance of the clients’ funds was misappropriated.

Returns paid to clients were invariably not derived from legitimate investments but from money invested by other investors in typical Ponzi-scheme style.

The FSCA says the administrative penalty imposed on Jooste was a significant contributor to the increase in the total value of penalties for the year.

This substantial penalty was due to the deliberate and prolonged nature of his misconduct, the sophisticated efforts to avoid detection and the resulting substantial market loss of approximately R220 billion.

The penalty aims to deter such conduct and underscore the importance of reliable price discovery in financial markets, the FSCA says.

ALSO READ: FSCA warns consumers about dodgy investments on Telegram

Increase in deepfake scams and impersonation of FSPs and regulators

The FSCA also expressed its concern about the increase in deepfake scams in the report.

With the advent of artificial intelligence and rapid software development, the FSCA observed a surge in deepfake scams.

Fraudsters use AI and other technologies to create fabricated, high-quality videos, images, audio, or text content that imitate public figures and successful businesspeople to promote scams, the regulator says.

Another rising problem is the impersonation of legitimate financial service providers (FSPs) and the FSCA says it encountered numerous instances where fraudsters impersonate legitimate FSPs to solicit funds from unsuspecting members of the public applying very sophisticated methods and tools.

The FSCA urges consumers to contact it to verify the legitimacy of entities offering trading or investment services.

Scammers are now even going as far as impersonating of regulators.

The FSCA identified several instances where fraudsters impersonated the FSCA, its leadership officials and its staff members.

These fraudsters reach out to the public, claiming to be employed by the FSCA, offering assistance to facilitate withdrawal requests or recover funds lost through scams.

ALSO READ: FSCA warns that scammers are impersonating financial services providers

Social media scams another problem

Another way for scammers to steal from consumers is exploiting social media platforms.

The FSCA says social media platforms provide financial criminals with easy access to the public and they exploit these opportunities offered by platforms such as Telegram and WhatsApp to access a high volume of potential victims.

They often offer clients unrealistic returns, sometimes within a few hours of investing. Fraudsters share fake positive reviews and fabricated screenshots of returns in these groups.

They also portray wealthy lifestyles on social media and frequently request additional funds to “process their withdrawals”.

To avoid detection and prosecution, fraudsters use mule accounts opened at banks and crypto exchanges, the FSCA warns.