It is clear that the FSCA does not lightly withdraw an asset manager’s licence in view of the possible consequences for investors, yet there comes a time when there appears to be no other option.
Background
JM Busha Asset Managers’ licence was suspended in 2019. Following input from JM Busha, the regulator lifted the suspension in July 2020 after the signing of an enforceable undertaking (EU). This was done because JM Busha needed its licence to collect the money owed to five retirement funds on whose behalf it had made investments.
The retirement funds were the Electrical Contracting Industry Pension and Provident Funds, the Engineering Industry Fund, the Metal Industry Fund, the South African Municipal Workers’ Union National Provident Fund, and the Samwu Risk National Provident Fund.
According to the EU, JM Busha made investments on behalf of the funds without complying with the guidelines, limits, and restrictions in the funds’ investment mandates. It also did not properly disclose the investments to the five funds.
It said JM Busha invested a total of R3.4 billion on behalf of the funds. This included R410 million invested in three entities that the FSCA singled out as being beyond the retirement funds’ mandates.
One of the entities was Shepherd Bushiri Investments, the investment company of self-proclaimed prophet and pastor Shepherd Bushiri, which received a total of R200m. A total of R150m was invested in Inyatsi Construction Group, while R60m was invested in SME Bank of Namibia.
According to the EU, the retirement funds were at risk of not recovering their investments, and about R477.4m was outstanding when the undertaking was signed.
The EU required JM Busha to take all reasonable steps to recover the retirement funds’ money. It also required the company to remedy its non-compliance with the financial soundness requirements, as set out in section 48 of the Determination of Fit and Proper Requirements.
In September 2020, BusinessLive quoted the asset manager’s chief executive, Joseph Busha, as saying that only R290m was outstanding, because some of the money had been repaid. He also said that none of the outstanding money had been lost, because the debt instruments had guarantees.
In May last year, the FSCA published a notice stating it had withdrawn JM Busha’s licence with effect from 1 April 2021. The Authority cited contraventions of the Fit and Proper Requirements, the Code of Conduct for Administrative and Discretionary FSPs, the General Code of Conduct, and the FAIS Act.
Liquidity and solvency
In its reconsideration application, JM Busha challenged the withdrawal of its licence because it failed to pass the liquidity and solvency tests of the Fit and Proper Requirements.
Sub-section 48(2) requires a Category II FSP to maintain liquid assets equal to or greater than 8/52 weeks of annual expenditure.
JM Busha submitted that it met the liquidity requirement, saying its total liquid assets exceeded R1.5 million, not R107 535.
Sub-section 48(1) requires a Category II FSP’s asset to exceed its liabilities at all times.
JM Busha said it was addressing this problem by restructuring its balance sheet, to remove intercompany loans. It was also engaged in discussions with the South African Revenue Service to reach an agreement about how to pay a tax liability of more than a R1m.
In its decision, the FST said it was clear from the record that JM Busha did not, at the time of the hearing in July this year, meet the liquidity and solvency requirements; its assets were still less than its liabilities. Therefore, the FST said, JM Busha was not only in breach of the EU but also section 48 of the Fit and Proper Requirements.
Money owed to a retirement fund
One of the other reasons the FSCA withdrew JM Busha’s licence was its failure to pay out the full amount of an investment it made on behalf of the Electrical Contracting Industry Pension Fund.
In November 2017, the fund gave JM Busha an investment mandate for a protected structured product. On maturity in 2018, the investment was rolled over for a further 12 months. In November 2019, the fund decided not to roll over the investment again and asked to be paid out.
The initial investment was R103m, and the value had grown to R134m by the termination date. But the fund received only R36.7m in January 2020.
Despite being granted several extensions, JM Busha failed to return all the money to the fund, the FST found. It said JM Busha’s response – that the counterparty had failed to honour its promises – “does not assist it”.
The unanswered questions
The EU signed in July 2020 included a breakdown of the amounts owed to the retirement funds.
Moonstone asked the FSCA for an update of the amounts that were recovered, or were still outstanding, when it withdrew JM Busha’s licence on 1 April 2021.
We also asked what measures the FSCA taken, or will it take, to ensure that any outstanding amounts are recovered.
The FSCA has yet to respond to these questions.
This guy is not an “asset manager”, he is a crook, plain and simple!