Sarb and FSCA investigating Crowd1

South Africa’s financial regulatory authorities are taking a serious look at Crowd1, the controversial Spanish company that claims to be a networking marketing firm.

The South African Reserve Bank (Sarb) Prudential Authority says it has been investigating Crowd1, part of the Madrid-based Impact Crowd Technology group, since last month – looking specifically into whether it is a deposit-taking organisation.

Crowd1 told Moneyweb last month that it makes its money through the sale of products such as education packages. It disputed findings made by regulators like that of the Bank of Namibia that it is actually a pyramid scheme, with most of its revenue derived from getting existing members to sign up new members.

Read: Consumer Commission not looking into Crowd1

Crowd1 has grown rapidly in South Africa following its global launch late last year. While the exact number of people involved in Crowd1 in SA are hard to come by, there are several local Facebook numbering in the thousands.

The Prudential Authority, along with the Financial Sector Conduct Authority (FSCA), are not investigating whether it is a pyramid scheme, but rather if it is acting like a bank or financial services firm in taking and holding people’s money.

The Prudential Authority decided to start investigating the group after receiving several complaints from the public regarding its activities in SA.

Although the investigation is ongoing, the Prudential Authority, which governs banking, says it has “not issued any licence in terms of a financial sector law or in terms of the Financial Sector Regulation Act to Crowd1 for any financial product, financial service or market infrastructure provided”.

The regulator did not specifically tell investors not to be involved in Crowd1 it, but did stress in its statement that the public should be careful when it comes investing in unregulated companies.

Consistent warnings

“The Sarb has consistently warned members of the public against investing with unregulated entities and to remain vigilant through conducting due diligence assessments on any entity to make sure these entities and the products that they offer are authentic and registered with the relevant authorities.”

It noted that: “A person may not provide a financial product, financial service or market infrastructure except in accordance with a licence in terms of a specific financial sector law, the National Credit Act or the National Payment System Act.”

In an earlier statement, the FSCA backed up the Prudential Authority’s view, saying: “In general, we do not advise the public to ever invest money in a financial entity/organisation that is not registered with us. Any investment or business opportunity that is offered to the South African public [that is not regulated by the Companies Act] must be offered by an authorised financial services provider.”

For its part, Crowd1 has stressed that it is not a financial services provider.

NCC: Will it investigate?

Although the FSCA and the Prudential Authority are investigating whether Crowd1 is breaking South African financial laws, it’s still unclear if the National Consumer Commission (NCC) is looking into it.

Last month, the NCC said that it wasn’t, despite moves by several regulators around the world declaring it a pyramid scheme, which is deemed illegal under the Consumer Protection Act.

Under this act, the NCC is the lead agency when it comes to dealing with pyramid or Ponzi schemes.

Moneyweb asked the NCC if it has reconsidered investigating Crowd1 but had not received a response by the time of publishing.

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