FSCA cracking the whip on infractions



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JIMMY MOYAHA: As promised, we’re taking a look at those developments from the FSCA [Financial Sector Conduct Authority]. We’re going to be looking towards these conversations a lot more in the future, and we’re going to try to make them weekly conversations if we can. It’s so important for consumers to be aware of the institutions that you deal with and the institutions you engage with, especially where it relates to financial services. So we’re going to be going down this educational consumer awareness drive to do what we can to ensure that everybody keeps up to date with what’s been happening.

Speaking of what’s been happening, there’ve been quite a few developments, especially one that came out today from the FSCA. I’m joined on the line by the department head of market abuse at the FSCA, Alex Pascoe, to take a look at some of these developments. Good evening, Alex. Thanks for the time.

There’ve been quite a few announcements from the FSCA over the last couple of days, some during last week but some from this week as well. The general sense here is that the FSCA is continuing down the path of zero tolerance towards infractions and market abuse.

ALEX PASCOE: Yes. Good evening Jimmy, and thank you for this opportunity, as most people have seen the announcement that the FSCA made regarding Mr [Markus] Jooste and Mr [Dirk] Schreiber as to the false and misleading statements in terms of Steinhoff International. So we are really taking a hard stance on these perpetrators, and the main message we want to put across is the deterrent effect of such acts. We really need a fair marketplace going forward. So yes, this is a very important announcement for us.

Read: Markus Jooste slapped with a R475m fine for Steinhoff misconduct

JIMMY MOYAHA: And Alex, this goes a little beyond just a deterrent for those looking to potentially commit these sorts of acts. It’s also an emphasis that, one, there will be consequences –  and serious consequences – around that, but, two, that the FSCA prides itself on being able to protect consumers because, at the end of the day, that’s what the regulatory body exists to do, which is to ensure that consumers are protected from things that would put them in a worse-off position, especially in financial services.

ALEX PASCOE: Yes, Jimmy, that’s correct. In just this incident alone we have a R475 million administrative penalty on Mr Jooste –  by far the biggest penalty on an individual. But he was the CEO of an international listed company. He reported not only to the board and auditors, etc, but also to investors, investors that were not only retirement funds, pension funds and collective investment investments.

What people had believed Steinhoff was worth was not actually that.

So we really need to put that message out that we’re here to protect those investors. And if you are going to be in that position, you’ve got to adhere to all the regulations, be it financial sector … laws or the JSE listing requirements.

JIMMY MOYAHA: Alex, I want to look at the severity of the announcement. Obviously R475 million is a large sum, as you said – the largest to be levied on a single individual. But at the same time, in the context of the fact that Steinhoff had a market cap at one stage north of R350 billion that has been wiped out, I think that it’s also important to remember that there’s a difference between a small infraction, a slight misdemeanour – something where the parties may not have known what was going on – and the very clear line [as to] what can constitute market abuse.

ALEX PASCOE: Look, there was a restatement of the 2016 results, which culminated in R155 billion restated equity on Steinhoff. Within days the Steinhoff market capitalisation lost over R220 billion, and it never recovered. Steinhoff International doesn’t even exist any more. It’s a private company. The extent of those losses, as I mentioned previously in parliament, [makes it] a South African Enron. So that’s the extent and severity of this event.

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JIMMY MOYAHA: Alex, we’ve discussed the penalties levied against Mr Jooste and Mr Schreiber for the conversations about which [Mr Schreiber] has been cooperative. What about Steinhoff itself – what to do about the rest of the business, because inasmuch as there were individuals that were responsible for leading the business, there is also a fiduciary duty that sits with the company itself. How are we navigating that? How is the FSCA tackling Steinhoff on the company side of the conversation?

ALEX PASCOE: Jimmy, back in September 2019 we issued an administrative penalty of R1.5 billion against Steinhoff International. At that point in time, there was a new board; that type of penalty would’ve probably put them into liquidation or business rescue. They did mitigate, and they did apply for remittance of that penalty.

They did eventually pay R53 million before becoming a private company. So there was enough mitigation to reduce that penalty, but yes, we have already issued that administrative penalty to the company.

This is on the executives and other executive officers that we will be investigating.

This is the first report. There is a second report that still needs to be completed, and that same process will happen.

JIMMY MOYAHA: Alex, let’s move to some of the other investigations and pronouncements that have come out from the enforcement team, and take a look at how that filters into what we know about the markets and where we draw the line where it relates to market abuse.



There was an announcement from the enforcement team that the FSP [financial service provider] licence of the Lehumo Securities organisation was provisionally withdrawn, and I want to look at that alongside the Steinhoff announcement that came through today as well from a market-abuse perspective.

Read: FSCA cracks the enforcement whip … 1 668 times

Obviously there’s a lot that goes into these investigations before we arrive at these decisions. I imagine the decisions taken, whether by enforcement or taken by your team from a market abuse perspective, are not arrived at lightly; there’s so much that goes into these investigations.

ALEX PASCOE: Yes. We started this investigation back in 2018. We had various investigations just into the insider-trading event with regard to that famous SMS by Mr Jooste. That eventually culminated after two tribunal hearings in a R20 million penalty. So this particular investigation took many, many years. We interviewed many people around the world, so it ended up with a report of nearly 700 pages, 14 000 pages of annexures and exhibits. So the recommendations to our decision-makers [was] to take all that evidence and make a decision.

The opportunity was also given to Mr Jooste and Mr Schreiber that they could make submissions on the contraventions and penalty, and we made extensive responses to that. The decision-makers then made a final decision on March 19 with regard to such penalty.

But, as you can see, with the extent of the investigation, just on the volume, it’s not an easy, easy decision. And it is a very comprehensive decision that’s been made with regard to these market abuse cases.

JIMMY MOYAHA: Alex, does that then mean that you are prepared to go down a legal road and the legal battle that comes with these sorts of decisions that you would take, because we know that in the past – like the previous administrative penalty that was levied – Mr Jooste would then go on to legally appeal this. Are we expecting that decisions like this or decisions around enforcement and consequences of market abuse would be appealed and the FSCA be prepared to fight these in court?

ALEX PASCOE: Well, just at the outset, the investigation alone we were really prepared for – beyond an issue and administrative penalty. So the detail that we’ve gone into in that investigation, we were prepared – if this had to go further with further litigation, be it to the tribunal, the high court or even the SCA [Supreme Court of Appeal] or the Constitutional Court, we’d be ready. And we would be ready to back up our investigation and the recommendations and the decision that’s been made.

So, just to highlight that, Mr Jooste does have that opportunity to take this decision on reconsideration to the Financial Sector Tribunal, and he can suspend this penalty.

From there, if he’s unsuccessful at the tribunal, he can then take this on review to the high court and to the higher courts going forward.

But yes, we are ready for any litigation that will come out of this event.

JIMMY MOYAHA: Well, the message is very clear that the FSCA is going to continue to do everything in its power to protect consumers, to protect you and me as investors, and to protect the integrity of financial services.

We’ll leave it at that. Alex, thanks so much for those insights. Alex Pascoe, department head for market abuse at the FSCA, joined me to reflect on some announcements that the FSCA has put out in the media lately.

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