The Enforcement Committee
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.
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.
In simple cases of late submissions and returns, the registrar retains his authority to impose penalties. Every other case of non-compliance with FSB legislation (and subordinate legislation), may be referred to the EC.
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:
After the delivery of the FSB pleadings, the respondent has 30 days4 to file his answering affidavit with the FSB.
After delivery of the answering affidavit, it is possible to determine the points in dispute, as opposed to the points that are common cause to the parties.
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.
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.
The chairperson may also rule on matters such as the case being presented as a stated case, by way of abbreviated pleadings or other proceedings that will expedite the matter. However, the standard procedures have been designed in such a way that there will seldom be scope for expediting the proceedings further.
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.
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:
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).
Section 6D(3) of the FI Act sets out some of the factors that the EC may take into account when it decides on a penalty.
The above administrative sanctions do not constitute a previous criminal conviction15.
In terms of section 6D(3) of the FI Act, the EC must have regard to the following factors, when imposing a penalty:
The purpose of the compensation order is to make good the loss or damages suffered and would therefore be equal to such loss.
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.
Section 7 of the FI Act makes allowance for the repayment of any losses that were caused by an undesirable business practice of a financial institution.
However, the registrar may only make a section 7 order, if the undesirable business practice is not a contravention of an FSB law. If it is a contravention, the EC may make a compensation order.
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.
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.
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:
After such notice has been served, the appeal must be prosecuted within 60 days.
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.