The Financial Services Tribunal (FST) has told the FSCA to reconsider the penalty of R4 000 a day it imposed on Akani Retirement Fund Administrators in 2020 for not submitting reports timeously. The total penalty was R2.672 million by 31 July this year.
According to the FST, it was undisputed that:
- Akani violated Condition 11 of Board Notice 24 of 2002 by failing to submit the required reports from its independent auditor and the management representation letter within six months after the end of its financial year;
- Akani failed to reply “meaningfully” or at all to six reminders and notices that the FSCA sent to it between 30 September 2020 and 24 March 2021;
- Akani failed to provide an explanation to the FSCA when invited to do so by way of a notice of intention to impose a penalty dated 5 August 2021; and
- The FSCA decided to impose the penalty on 2 September 2021, and compliance followed a few months thereafter.
Akani’s Condition 11 documents were due on 31 August 2020 but were submitted on 15 November 2021 and 16 February 2022.
In its reconsideration application, Akani said it failed to meet the deadline for the following reasons:
- Its auditors had terminated their services unilaterally;
- There had been a delay in appointing new auditors;
- A dispute with the formers auditors resulted in a further delay in the handover of Akani’s documents; and
- The Covid-19 pandemic.
The FST said the FSCA had not been made aware of these problems, despite giving Akani “multiple opportunities” to do so. As Akani had still failed to comply a year later, the FSCA “properly exercised its discretion on the facts before it” and imposed the penalty.
Akani questions lawfulness of R4 000-a-day penalty
Akani challenged the penalty of R4 000 a day on the basis that it was unlawful and excessive.
Sub-section 37(2) of the Pension Funds Act (PFA) authorises the Registrar of Pension Funds (FSCA) to impose a fine “not exceeding R1 000 or such other amount prescribed by the registrar for every day” during which a retirement fund, administrator or third party fails to submit, within a period specified in terms of the PFA or in a directive or condition imposed by the registrar in terms of the Act, any scheme, statement, report, return or other document or information required to be submitted in terms of the PFA.
The FSCA said Board Notice 1 of 2018 increased the maximum penalty to R4 000 a day.
This notice, which was published by the erstwhile Financial Services Board on 18 January 2018, quotes sub-section 37(2) and goes on to say, “Section 37(2) further enables the registrar to prescribe a different maximum amount that may be imposed as an administrative penalty.”
But Akani contended that Board Notice 1 had been published only on the FSCA’s website “and has not been given force of law”. Therefore, if a penalty must be imposed, it cannot exceed R1 000 a day.
The FST stated: “We are of the view, in the particular context to this dispute, that the determination on the lawfulness of the penalty when the respondent [FSCA] was not provided with all relevant facts as would have influenced its determination of the amount is not necessary.
“The applicant [Akani] defaulted on a statutory obligation and did not conduct itself transparently or professionally in the months leading to its compliance. It is possible, however, that the explanations belatedly advanced by the applicant may have influenced the respondent to impose a different penalty.”
The tribunal remitted the matter to the FSCA for it to reconsider the penalty. Akani was ordered to pay the costs of the hearing.
Comment
The FST’s decision does not provide much detail of the arguments on which Akani relied to challenge the legality of Board Notice 1 of 2018, or whether adjudication was specifically sought on this matter. One would think it would be important to settle this issue.
Second, the tribunal says the FSCA should reconsider the penalty based on Akani’s “belated explanations”. At the same time, it accepts that Akani had opportunities to inform the FSCA of the problems that prevented it from meeting the deadline, but it did not do so, even after the FSCA notified Akani that it intended to impose a penalty. It is, therefore, difficult to follow the tribunal’s reasoning in directing the FSCA to reconsider the penalty on this basis.
