The Financial Sector Conduct Authority has handed down substantial administrative penalties and lengthy debarments against several entities and individuals associated with Medbond, following what it described as an extensive investigation into their conduct.
The sanctions, which were announced on Tuesday, follow the Authority’s withdrawing of the financial services provider licences of Medbond Insurance Brokers (Pty) Ltd and Medbond Markets (Pty) Ltd at the end of November.
Read: Licences of Medbond Insurance and Medbond Markets withdrawn
The FSCA fined Medbond Insurance Brokers and its principal, Jacobus Meyer, a combined R197 million, for which they are jointly and severally liable. Additional penalties of R5m each were imposed on Medbond Markets, Medbond Fund Managers (Pty) Ltd, and Masjamplan (Pty) Ltd. This means the total fine imposed on the group is R212m.
The Authority also debarred Meyer for 30 years and Frederick Andries Jacobus van Heerden for four years. Meyer and Van Heerden are now barred from providing, or being involved in the provision of, financial services; acting as key persons of financial institutions; and providing financial services to such institutions under any form of arrangement.
The FSCA said its enforcement action follows an investigation that examined the conduct of these entities and individuals across various parts of the Medbond Group.
According to the Authority, it found, among other things, that Medbond Insurance Brokers contravened multiple provisions of financial sector legislation, including section 2 of the General Code of Conduct for Authorised Financial Services Providers and Representatives, section 7(3) of the Financial Advisory and Intermediary Services Act, and section 2(b) of the Financial Institutions (Protection of Funds) Act.
It said the company advised clients to invest in a group variable annuity (GVA) at Lombard International Life that was not, in fact, available for investment. An analysis of bank accounts, the FSCA said, disclosed that the funds solicited from clients were not invested and were instead misappropriated.
The Authority further found that Medbond Markets contravened section 2 of the General Code of Conduct by acting as a discretionary manager and undertaking to manage client investments into a GVA at Lombard International, despite no such product being available.
The FSCA also noted that Medbond Markets had allowed deposits from clients to be received by other entities within the Medbond Group that were not authorised FSPs.
Medbond Fund Managers and Masjamplan were found to have contravened section 7(1) of the FAIS Act. The FSCA stated that both companies had rendered intermediary services without authorisation.
In its findings against Meyer, the Authority said he contravened section 2(b) of the FI Act and section 7(1) of the FAIS Act. The FSCA stated that the inappropriate advice issued by Medbond Insurance Brokers enabled him to gain control of clients’ funds, which were subsequently misappropriated.
The FSCA also detailed its findings against Van Heerden, stating that he contravened section 2 of the General Code of Conduct and section 7(3) of the FAIS Act, read together with section 42 of Board Notice 194.
According to the Authority, Van Heerden caused, conspired with, aided, abetted, induced, incited, or procured Medbond Insurance Brokers to contravene several financial sector laws. It said Van Heerden no longer met the fit and proper requirements under section 8A of the FAIS Act and had facilitated clients entering agreements with non-FSP entities, enabling unregistered companies to manage client funds.
In determining the appropriate regulatory action, the FSCA stated it had taken certain mitigating factors into account with respect to Van Heerden. These included his full co-operation during the investigation and the material evidence he provided.
The Authority emphasised that Van Heerden was not complicit in the misappropriation of client funds.
Given the seriousness and extent of the misconduct identified during the investigation, the FSCA said it has reported the matter to the South African Police Service. The Authority will assist the SAPS if requested and will share all evidence gathered during its investigation.
