The Enforcement Committee

• Which cases may be referred
• Referral process
• Audi alteram partem
• Appointment of a panel
• Hearing by the EC
• Oral evidence
• Determination by EC
• The imposition of a penalty
• Compensation orders
• Costs orders
• Settlements
• Appeal proceedings
• Disclosure of an EC order

The Enforcement Committee is an administrative body established to adjudicate on all alleged contraventions of legislation, regulations, codes of conduct, etc. administered by the Financial Services Board. The Committee may impose unlimited penalties, compensation orders and cost orders. Such orders are enforceable as if it was a judgment of the Supreme Court of South Africa.

The FSB has stipulated effective enforcement as an important factor in its strategic plan. To aid effective enforcement, the FSB Enforcement Committee (EC) was established by statute in the Financial Institutions (Protection of Funds) Act, 2001. The Committee considers cases of alleged contraventions of legislation administered by the FSB. The Committee is appointed by the Board of the FSB.

EC members are appointed for their knowledge and experience (with reference to the different industries). In addition, the chairperson and deputy chairpersons must either be advocates or attorneys with more than 10 years experience, or judges.

Which cases may be referred

If the registrar is of the opinion that any provision of any Act¹ administered by the FSB has been contravened, he may refer the case to the EC2. However, if the registrar himself is by law empowered to impose a penalty, such case may not be referred to the EC3. In other words, the registrar and the EC do not have dual jurisdiction.

Referral process

A matter is referred to the EC by the serving of the following documentation by the applicant on the respondent at his residential address, registered office or principal place of business:

• A notice in terms of section 6B(1)(a) of the FI Act (“a section 6B notice”) setting out the detail of the alleged contravention and the penalty to be imposed; and
• An affidavit setting out all the necessary facts and documents in support of the allegation(s) and the relief sought.

Audi alteram partem

After the delivery of the FSB pleadings, the respondent has 30 days⁴ to file his answering affidavit with the FSB.

Appointment of a panel

It is the responsibility of the chairperson of the EC to appoint a panel to deal with each specific case⁵. If the chairperson is not available, such panel must include a chairperson that must be one of the deputy chairpersons of the EC (In other words, it will be an advocate or attorney with at least ten years experience6, or a judge).

A minimum of two further additional members, who are suitably qualified to decide on a particular matter, must be appointed to the panel7.

Hearing by the EC

The hearing of the EC in essence means that the panel will consider the case as set out in the affidavits. The proceedings are designed in such a way that the affidavits will crystallize the points of dispute.

A panel chairperson may require heads of argument⁸ to be filed by the parties. In addition, he may allow legal representation during the hearing. The role of the legal representatives will be to argue the case as set out in the affidavits. Such argument may include any points of law, but must be confined to the facts before the EC. The only way to introduce new facts is to get special leave from the EC to file additional affidavits.

Oral evidence

If a witness is to be called, the FSB will draft a subpoena⁹, have it signed by the panel chairperson, and take care that it is served on the witness. Service of the subpoena will be attended to by the Inspectorate of the FSB. After successful service, the relevant inspector must depose to an affidavit10 to confirm that proper service has taken place.

Determination by EC

It is the responsibility of the EC to determine whether a respondent has contravened a provision of FSB legislation¹¹ (a section 6D(1) finding). If so, the EC may:

• Impose a (unlimited but specified) penalty12 (a section 6D(2) penalty);
• Order the respondent to pay compensation13 (a section 6D(2) compensation order); and
• Make a cost order.

If the respondent is alleged to have contravened the insider trading provisions of section 73 of the Securities Services Act, 2004 (SSA), the EC may also impose triple penalties as set out in section 77 of the SSA14 (insider trading penalties).

The above administrative sanctions do not constitute a previous criminal conviction15.

The imposition of a penalty

In terms of section 6D(3) of the FI Act, the EC must have regard to the following factors, when imposing a penalty:

1. The nature, duration, seriousness and extent of the contravention;
2. any loss or damage suffered by any person as a result of the contravention;
3. the extent of the profit derived or loss avoided by the respondent from the contravention;
4. the impact which the respondent’s conduct may have on the relevant sector of the financial services industry;
5. whether the respondent has previously failed to comply with a fiduciary duty or law;
6. any previous fine imposed or compensation paid for the contravention based on the same set of facts;
7. the deterrent effect of the administrative sanction;
8. the degree to which the respondent co-operated with the applicant and the EC; and
9. any other factor, including mitigating factors submitted by the respondent, that the EC considers to be relevant.

Compensation orders

The registrar may request the EC to order the respondent to pay damages to any person who has suffered a patrimonial loss¹⁶ as a result of a contravention17.

In the case of an insider trading contravention, the compensation order will be calculated at a maximum of four times the profits made or losses avoided by the offender, as a result of the offending transactions18.

Costs orders

Standard costs orders

In addition to penalties and compensation orders, the EC may make a “suitable and fair" costs order. The enforcement counsel should therefore be prepared to argue issues pertaining to a costs order.

The award of costs is in the discretion of the EC. However, this discretion must be exercised reasonably, taking into account the circumstances of the case.

The most important principle is that a successful party is entitled to his costs, unless there is good reason to deviate from this rule. In deciding who the successful party is, the EC should look to the substance of the outcome of the matter.

Extended costs orders

The registrar may also request the EC to include in the costs order “... the cost of constituting the enforcement committee panel and all expenses reasonably incurred by the applicant in investigating the alleged non-compliance and referring the matter to the enforcement committee.”¹⁹

The EC must include such a request in suitable cases. The motivation is that the rest of the industry should not have to “pay” for the transgression of the respondent.

Settlements

The applicant (the registrar or the DMA) may at any time entertain settlement negotiations, and enter into a written settlement agreement with a respondent. In other words, the respondent may admit a contravention, and agree that a specific penalty be imposed²⁰.

In such a case, the applicant must file the agreement with the chairperson of the EC, who can make this an order of the EC²¹.

Appeal proceedings

A respondent or the FSB may appeal to the High Court²² against an EC order. The appeal rules of the High Court (relevant to an appeal from a civil district court) apply to this appeal²³.

In terms of the Rules of Court, a prospective appellant may request a written section 6D determination²⁴ within ten days after the EC handed down judgment²⁵. In such a case, the committee clerk must immediately bring the request under the attention of the panel chairperson. The panel chairperson then has 15 days to produce a written judgment that includes the facts they found to be proved, and their reasons for judgment²⁶.

A prospective appellant has 20 days, either from the date that the section 6D determination was handed down; or after having received the written determination (if he applied for it), to note his appeal²⁷.

To note an appeal the appellant must deliver a notice stating:

• Whether the whole or part of the judgment is appealed against, and if so, which part; and
• The grounds of appeal, specifying the findings of fact or rulings of law appealed against.

After such notice has been served, the appeal must be prosecuted within 60 days.

Disclosure of an EC order

The proceedings of the EC are public. In addition, the law requires the registrar (or the DMA) to make any order of the EC public in an appropriate manner.