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FAIS Ombud’s advice may impact on “white collar crime” statistics

Commercial crime is amongst the top 10 most common crimes in South Africa. Yes, it resides on the same list as drug related crime and burglaries.  According to the 2018 SAPS report 73 277 cases were reported in 2017, which equals to 201 cases per day. Commercial crime includes different types of “white collar” crimes such corruption, fraud, money laundering, embezzlement and forgery.

In a few of the latest FAIS Ombud determinations, complainants are advised to report the case at the Commercial Unit of the SAPS as well. In two of these determinations the respondents are the same company. Company S’s license was approved on 14 October 2004 and withdrawn by the Regulator on 9 September 2014.

Complaint 1

With the assistance of representatives working for company S, the complainant made his first investment of R15 000 during May 2005. He subsequently made two further investments during July and October of 2007 in the amount of R10 000 each. The complainant was assured that it was extremely good and safe investments. When the complainant finally decided to withdraw his capital, he was unable to contact the respondent. As a result he sought repayment of his capital in the amount of R35 000.

Complaint 2

In September 2011 the complainant invested an amount of R100 000 in a product called “The FixedGRO Option” following advice from respondent. When the investment matured during September 2017, the complainant informed the respondent in e-mail correspondence that he would like to withdraw his investment. After various attempts he concluded that he had had enough and filed the present complaint during July 2017. To date, the complainant has not received his capital back. The complainant sought repayment of his capital amount of R100 000.

Determination and reasons

In both these cases the issues for determination were:

  • Whether the respondents in rendering financial services complied with the provisions of the FAIS Act and the General Code of Conduct,
  • Whether the respondents conduct caused the complainant’s loss.
  • Quantum of such loss.

Section 8 (1) of the Code dictates that a provider must, prior to providing a client with advice:

  • seek appropriate and available information regarding the complainant’s financial situation, financial product experience and objectives to enable the provider to provide the client with appropriate advice;
  • conduct an analysis for the purpose of the advice, based on the information obtained; and

There is no evidence that the respondent complied with this section of the Code.

The questions that must be answered is whether the respondent’s materially flawed advice and actions caused the complainant’s loss, and secondly, whether the non-compliance of a provision of the Code can give rise to legal liability.

In both instances there is sufficient information to demonstrate that the respondent had not been candid with the complainants about the nature of the investments. As a result the complaints were upheld and the respondents requested to pay the complainants the amounts of R35 000 and R100 000 respectively. The matters will also be escalated to the FSCA for further consideration and to take further steps where deemed necessary.

The Ombud’s office has received a number of complaints involving the same respondents. Investigation into other FAIS Ombud determinations since 2016 showed that company S were ordered to pay complainants the total amount of R544 000.

With the recommendation added to determinations to report the respondents to the SAPS’s Commercial Crimes Unit one question now remains: Will we see an increase in the annual statistic for commercial cases?

Click here to read both determinations.

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