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Licence withdrawn for failure to comply with financial requirements

Licence withdrawn for failure to comply with financial requirements

It appears that we live in a country where people can flaunt the law at will and get away with it. Reading the daily reports from the Zondo commission makes one’s hair stand on end. This is particularly irksome for those in the financial services environment where claims of over-regulation cannot easily be dispelled.

Whilst the constitution allows those with the means to delay justice to such an extent that it is often never achieved, in the financial sector, mostly, this does not transpire.

The Financial Sector Tribunal recently ruled on an application by a funeral services company  to have the withdrawal of its license by the FSCA in terms of section 9 of the FAIS Act reconsidered.

The reason for the withdrawal is that the applicant had failed to submit an audit report as required by section 19(3) of the Act. The section requires of a financial service provider to submit a report to the Authority, by the auditor that, inter alia, confirms the amount of money and financial products at year end held by the FSP on behalf of clients and that such money and financial products were, throughout the financial year, kept separate from those of the business of the provider.

The report must be submitted to the authority in addition to and simultaneously with the financial statements referred to in section 19(1).

The failure to supply the necessary audit report relates to the financial year that ended on 28 February 2019. After correspondence, the respondent suspended the applicant’s license on 9 June 2020. Only on 9 February 2021 was the decision taken to withdraw the applicant’s licence and the applicant was duly notified.

The application for reconsideration is based on the allegation that the deponent, who is a member of the applicant, did not intentionally ignore, refuse and/or denied to forward the information requested by the respondent. Due to “one or amongst the following reasons” the information could not be furnished because:

  1. “we were not aware that an audit report must accompany the financial statements” and
  2. discussions with the bookkeeper after this obligation became known brought to light that the bookkeeper was not familiar with the required audit report.

The first ground is untrue. The applicant knew, according to its email of 12 March 2020, since 2018 of the requirements of sec 19(3), and the requirements were spelt out by the respondent in its warning letter which preceded the suspension of the licence.

The second ground is misleading. The bookkeeper was approached on receipt of the withdrawal and not earlier.

The applicant relies on the effect of the withdrawal on its business and clients. That is, unfortunately the consequence of non-compliance with the statutory duties imposed on an FSP.

The Tribunal notes that it appears from the application that the applicant ignored the suspension order and continued and probably continues with its business activities. The FSCA is requested to investigate.

Since no grounds have been presented which indicate that the respondent had erred in its decision the application was dismissed.

Comment

When the regulator rules, based on facts at its disposal, that a licence is suspended, it means that the FSP should refrain from doing business while putting forward reasons why the licence should not be withdrawn. To continue doing business, and only trying to comply with the requirements after such withdrawal, appears to indicate disregard for the regulator.

Whist our industry may be over-regulated, at least there is application of the law, which contributes to the fair treatment of customers and keeping up the professional standards of the financial sector.

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