The Financial Sector Conduct Authority’s approach to transformation and its supervisory processes came into view during a meeting of the National Assembly’s Standing Committee on Finance (SCOF) that addressed the Authority’s role in a dispute between Blue Ocean and Hollard.
The dispute is before the High Court. The committee’s legal adviser, Advocate Frank Jenkins, told MPs during the meeting on 25 March that they should avoid engaging the merits of the case. The committee was not tasked with determining the dispute between the parties, but with assessing whether the FSCA acted in line with its statutory mandate.
The committee had also been scheduled to consider a dispute between a Mr Isakov and the FSCA. This matter dates to 2018, when Isakov lodged a complaint with the Ombudsman for Banking Services about alleged fraud relating to an investment in Saambou, which was taken over by First National Bank. Isakov was not present at the meeting. SCOF chairperson Joseph Maswanganyi said the matter could not be meaningfully engaged without his participation.
Context for the exemption – and its withdrawal
Makgompi Raphasha, who heads the FSCA’s insurance department, outlined the Authority’s understanding of the business relationship whereby Blue Ocean would sell commercial insurance policies on behalf of Hollard.
In addition, Hollard intended to support Blue Ocean to develop from a pure distributor into a specialist underwriting manager and, ultimately, a licensed insurer, as part of a transformation-oriented initiative.
According to Raphasha, the parties applied to the FSCA in 2021 for an exemption from the regulated commission limits because Blue Ocean would require additional remuneration to enable it to become an UAM and eventually an insurer.
Following undertakings by the parties regarding their abilities to fulfil their respective commitments under the arrangement, the FSCA granted a three-year exemption in April 2022, allowing commission (of up to 10.5% of the gross premium) above the regulated maximum.
According to Raphasha, the exemption was subject to conditions, including a board-approved progression plan with defined milestones to build insurance capability over time, as well as regular reporting to the FSCA.
Raphasha said such exemptions are subject to internal governance processes and require concurrence with the Prudential Authority, reflecting what he described as a high-threshold, public-interest assessment. The exemption could be withdrawn at any stage, including where the conditions were not met.
The exemption was withdrawn after it came to the FSCA’s attention in August 2023 that Hollard had terminated the arrangement.
Raphasha said it was unclear to the Authority why the relationship had broken down. During engagements with Blue Ocean and Hollard, the parties provided conflicting views, with each asserting they had performed as initially intended.
The FSCA conducted a supervisory assessment, which considered compliance with the exemption conditions, whether there had been any contravention of financial sector laws, and whether customers had suffered material prejudice.
The Authority did not find any contravention of a financial sector law or evidence of material prejudice to customers. However, it identified concerns about how the arrangement had been structured and implemented.
Dispute will be heard by the High Court
Blue Ocean (represented by managing director Winston Skosana and chairperson/investor Winky Makasi) and Hollard (represented by chief executive Willem Lategan and head of legal Danny Joffe) presented the committee with differing views on compliance with the exemption conditions and the reasons for the termination of the arrangement.
Neither party sought SCOF’s intervention to settle the merits of the dispute, which is now the subject of litigation, and are expected to be determined by the High Court in Johannesburg.
Instead, Blue Ocean’s representatives challenged the FSCA’s handling of the termination of the business arrangement and exemption and its assessment report. Blue Ocean asserted that enforcement action was warranted because, its representatives alleged, Hollard had not adhered to the conditions of the exemption. They also expressed dissatisfaction with the time taken by the FSCA to finalise its assessment report.
Hollard’s representatives declined to respond in detail to Blue Ocean’s allegations, noting the matter is sub judice. They aligned Hollard with the FSCA’s conclusion that no regulations had been broken, and the appropriate outcome was the withdrawal of the exemption once the arrangement proved commercially non‑viable.
Assessment timelines and mandate
Several members of the committee – David van Rooyen (MKP), Seaparo Sekoati (ANC), and Omphile Maotwe (EFF) – raised concerns spanning transformation, regulatory performance, and the treatment of smaller market entrants.
Van Rooyen queried the 13 months it took the FSCA to conclude its assessment, asking whether this reflects broader performance or capacity constraints within the regulator.
In response, FSCA Deputy Commissioner Farzana Badat said the timeline reflected the complexity of the case, which involved large volumes of technical documentation and required the regulator to distinguish between regulatory issues and the underlying commercial dispute.
She said there had been ongoing engagement with both parties throughout the period, and that the matter could only be finalised after obtaining concurrence from the Prudential Authority, given the nature of the exemption.
Van Rooyen also raised concerns about a statement that the FSCA had been pressed to provide findings favourable to Blue Ocean.
Badat responded that the FSCA had not suggested any attempt to influence the outcome of its report. Rather, she said the regulator had been pressed to finalise the report more quickly, which she linked to Blue Ocean’s stated need to use the report in its litigation.
Addressing concerns about its mandate, the FSCA said its role is to oversee market conduct, ensure customers are treated fairly, and assess compliance with regulatory requirements – not to adjudicate commercial disputes.
Badat said the matter was treated as a supervisory assessment, not an enforcement investigation, and emphasised that detailed factual disputes between the parties would be resolved through the courts.
MPs highlight transformation concerns
Van Rooyen described it as “painful” that an initiative intended to support a smaller, black-owned firm had not succeeded. Sekoati questioned what lessons could be drawn from the case, while Maotwe emphasised the need for regulators and established institutions to play a more active role in supporting smaller entrants in a complex industry.
Responding to these concerns, Badat said the FSCA supports efforts to broaden participation in the financial sector and had viewed the Blue Ocean arrangement as an innovative, first-of-its-kind initiative.
However, she emphasised that such arrangements are commercial in nature, and the FSCA does not have the mandate to compel institutions to enter or sustain them. The regulator’s role is to ensure compliance with financial sector laws and conduct standards, rather than to guarantee the success of transformation initiatives.
Badat said current legislation provides limited scope for the FSCA to drive or structure transformation initiatives or incubation models. In the insurance sector, she noted, explicit transformation provisions are largely located within the prudential framework, rather than the FSCA’s conduct mandate.
This is expected to change under the Conduct of Financial Institutions (COFI) Bill, which will enhance the FSCA’s powers when it comes to transformation, including the ability to take strong action against financial institutions whose commitments to transformation are found to be deficient.
She said the Blue Ocean arrangement was enabled through a case-by-case exemption, which constrains the FSCA’s ability to facilitate or standardise similar initiatives.
MPs seek clarity on capacity and lessons learned
MPs also questioned how the FSCA assessed the capacity of smaller entrants, and what lessons could be drawn to support future transformation initiatives.
Badat said the regulator’s review found that both parties had underestimated the demands of the arrangement, including the level of support required and the operational capacity needed to meet its objectives.
She said the case highlighted the need for more rigorous upfront assessment of feasibility, capacity, and support requirements, and these lessons would inform how the FSCA approaches similar applications in future.
