One would think that the required relationship between key individuals and their representatives are fairly clear. Where a key individual is required, at this time, to have successfully completed the level 1 regulatory examinations (REs), there should be no doubt in his mind concerning his obligations.
The latest Ombud determination makes it clear that there are still instances where people disregard their obligations in the hope that it remains undetected.
A problem arose in 2010 when it appears that, Suzette Brickhill, a “representative” of Protea Makelaars, of which Mathys Johannes Marais is the key individual, misappropriated client funds. It seems that, although she procured business for Marais, she was never appointed as a representative.
In response to a complaint from a client, “Santam instituted an investigation and discovered that there were a number of clients who paid money to Brickhill after she requested them to pay annual premiums on their Santam policies. It is alleged that Brickhill made use of fabricated tax invoices and policy schedules to deceive clients into thinking that they were insured. According to the report, neither Brickhill, nor Marais, had a mandate to collect premiums on behalf of Santam. Further evidence uncovered raised suspicion that various other acts of dishonesty might have been committed by Brickhill. Santam opened a fraud case against her and reported the matter to the Registrar.”
“The Registrar confirmed that, following receipt of Santam’s report, it entered into a settlement agreement with Marais. In terms of the agreement, Marais was ordered to pay an administrative penalty of R150 000 for the following contraventions:-
- Section 13(3) of the FAIS Act — Failure to maintain a register of representatives and key individuals, which must be regularly updated and made available to the registrar for reference or inspection purposes;
- Section 17(1)(a) of the FAIS Act — Failure to appoint a compliance officer to monitor compliance with the Act by the provider or its representatives, particularly in accordance with the procedures contemplated in subsection (3), and to take responsibility for liaising with the Registrar.
- Section 2 of the Codes – Failure to act with due skill, care and diligence, and in the interest of clients and the integrity of the financial services industry.
- Section 11 of the Code – Failure to efficiently employ resources, procedures and appropriate technological systems that can reasonably be expected to eliminate, as far as reasonably possible, the risks that clients, product suppliers and other providers or representatives will suffer financial loss through fraud, theft, other dishonest acts, poor administration, negligence, professional misconduct or culpable omissions.”
“It is not in dispute that Marais allowed Brickhill to render financial services to the public whilst not being registered with the Registrar as his representative in terms of Section 13 of the FAIS Act. In simple terms, Brickhill had no business rendering financial services to the public and both Marais and Brickhill were fully aware that they were violating the law in this regard. She also did not have the requisite qualifications to render financial services without supervision.” On Marais’ own admission, since 2005, he conducted audits on Brickhill’s clients’ files only once a year and visited her every six to eight weeks to discuss pending and finalised claims. Marais was obliged to have entered into a supervisory agreement with Brickhill that detailed the procedures regarding the rendering of services under supervision. Marais was also required to ensure that Brickhill was supervised at all times when executing her duties, which included the observation of selected meetings of Brickhill and her clients as well as the assessment of advice given by her.
Apart from his obligation to have properly supervised Brickhill, Marais was also required to have taken reasonable steps to ensure that she complied with the Code and to have efficiently employed resources, procedures and technological systems to eliminate as far as reasonably possible, the risk that clients might suffer financial loss. Marais failed to discharge these obligations. Marais basically left Brickhill to her own devices to do what she pleased, to the detriment of the public. Marais did not even bother to register her with the Registrar. For these reasons, I am compelled to not only hold 1st respondent (Brickhill), but also the 2nd respondent (Marais) liable for the losses suffered by the complainants.”
An interesting comment from the Ombud regarding Brickhill’s status reads as follows:
Brickhill was employed by Marais and rendered financial services to Le Roux. In terms of Section 13(6) of the FAIS Act: ‘A person who on the date contemplated in Section 7(1) complies with the requirements of this Act for a representative and on such date acts as employee of mandatory for any person who on or after such date becomes an authorised financial services provider, is for the purposes of this Act regarded as a representative’.
It is evident from the above that informal relationships, outside of what the law prescribes, will not be tolerated. There are other types as well, such as rent-a-licence, where a key individual is appointed purely as window dressing, and does not perform any of the functions required.
It seems that you can take a chance, but whether you will get away with it, is doubtful.
In this instance, the broker already had to fork out over R186 000. There are other complaints of misappropriation being investigated. He requested that his licence be cancelled, but will still be liable for any future losses suffered by clients during his time in the industry.
Click here to download the determination.