Author: Paul Kruger
Date Published: 15 April 2014
Consumers at the lower end of the market are often more vulnerable when it comes to being defrauded.
The latest Ombud determination provides details of how the Reformed Christians for Truth Church became the victims of an “advisor” (himself a pastor) who was neither registered with the FSB, nor appointed as an agent of the licensed financial service provider he claimed to represent.
The agreement was that he would provide funeral cover for congregants of the church, and that claims would be paid out within 48 hours. The first claim arose in December 2012. When it was not paid by January 2013, the church conducted an investigation and established that “…no funeral cover was in place.”
They referred the matter to the FAIS Ombud. In response to an enquiry from the Ombud, the respondent undertook to settle the outstanding amount before 30 April 2013, but this never happened, and the respondent seems to have disappeared.
The Ombud concluded:
The second respondent’s conduct is not only illegal in terms of the FAIS Act. His conduct is also unlawful in terms of the common law and amounts to fraud. On that basis alone, the second respondent must be held personally liable for the entire amount claimed.
The respondent was ordered to repay the church’s R18 000 within 7 days from date of the determination, and interest hereafter to the date of final payment.
As in the two cases discussed last week, the perpetrator was aware that he needed to be licensed, and that he had to work through a licensed product provider. It appears that he blatantly lied about this. He even used the FSP number of a registered provider despite not being registered as a rep with them.
It is not clear how the church became aware of the office of the Ombud, but at least it managed to get a determination in its favour. What has happened since is anybody’s guess. By January 2014, the outstanding amount had still not yet been paid and the respondent, who undertook to repay the money by the end of April, is missing in action.
There is, of course, no way that the Regulator would have been able to establish or prevent this.
One can only speculate on how many other incidents of this nature occur without the victims having recourse to remedy through ignorance. It is likely that such occurrences are prevalent in this sector of the market. The only long-term remedy appears to be consumer education regarding the safeguards in place to protect them from such scams.
One of the recent amendments to the FAIS Act concerns fit and proper requirements. The following is an extract from a summary written by Alan Holton, a compliance officer and associate of Moonstone:
A new S 6A (Fit and Proper Requirements) has been added to this statute. In terms of S 6A, the registrar must classify financial services providers into different categories and determine fit and proper requirements for each category of providers.
The registrar must then, in each category of providers, determine fit and proper requirements for the key individuals of providers, representatives of providers, key individuals of representatives of providers and compliance officers.
The challenge, of course, does not lie in regulating those in the flock, in a manner of speaking – it is those who opt to operate outside the legal parameters that are most likely to cause harm.
There are currently a number of investment schemes offering above average returns. They do not operate under the radar, advertise brazenly and must be making millions if one looks at their advertising campaigns. Some may well be doing what they promise, but so did major property syndications before market conditions changed.
It seems that the starting point for many of these operators is to set up structures which fall outside the jurisdiction of the regulatory authorities. This appeared to be the case with the Relative Value Arbitrage Fund which camouflaged its business operations in such a way that the FSB was unable to detect anything untoward during an inspection in May 2011. During a further investigation a year later, Herman Pretorius shot his business partner and himself.
There are no easy solutions to the problem of rogue operators. Hopefully, the implementation of Twin Peaks will cast the net wider, and contribute to a safer financial services environment.