The R2.1 million fine is for trading without being registered as a financial service provider, while the other two are for non-compliance with FICA.
The Financial Sector Conduct Authority (FSCA) has fined a man R2.1 million for running a forex investment scheme without being registered as a financial service provider, while also fining one company R1.6 million and another R200 000 for failing to comply with certain provisions of the Financial Intelligence Centre Act.
The FSCA imposed an administrative penalty of R2 113 225 on Ashley Mmachewe Mphaka and debarred him for 20 years after investigating Mphaka’s Greyshore Investments.
The FSCA handed its investigation report to the South African Police Services (Saps) and says it will actively assist the police if requested.
The findings of the FSCA investigation include that Mphaka solicited deposits from members of the public with the promise to manage their trading accounts and trade on their behalf. The FSCA found that Mphaka contravened section 7 of the Financial Advisory and Intermediary Services Act by rendering financial services without being authorised to do so.
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Mphaka refused to cooperate with FSCA investigators
According to the FSCA, Mphaka further contravened section 139 of the Financial Sector Regulation Act by failing to cooperate with the investigators.
The FSCA strongly discourages consumers from conducting financial services business with unauthorised people. You must check if someone is authorised by the FSCA to provide financial products and services, including giving recommendations about how to invest.
Also check what category of advice someone is registered to provide, as companies or people are sometimes registered to provide basic advice for a low-risk product and then offer advice on far more complex and risky products.
In addition, consumers must check that the FSP number the entity or individual offering financial services matches the name of the FSP on the FSCA database. You can check by calling the FSCA on 0800 110 443 or checking online for authorised financial institutions by license category here.
You can also check if a financial institution is an authorised FSP in terms of the FAIS Act here.
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FSCA fines two other companies
The FSCA also imposed administrative sanctions on Prime Collective Investment Scheme Management Company and Wealth Portfolio Managers for failing to comply with certain provisions of the Financial Intelligence Centre (FIC) Act.
The regulator imposed administrative sanctions of R1.6 million on Prime and R200 000 on Wealth. A portion of the sanction imposed on Prime, totalling R600 000, was conditionally suspended for three years.
Prime is a licensed collective investment scheme manager under the Collective Investment Schemes Control Act and Wealth Portfolio Managers is a licensed financial services provider under the Financial Advisory and Intermediary Services Act.
The FSCA says both entities are accountable institutions under the FIC Act. The FSCA is responsible for supervising and enforcing compliance of collective investment scheme managers and financial service providers with the FIC Act.
The objectives of the FIC Act include helping to combat money laundering, the financing of terrorism and other related criminal activities. All accountable institutions designated under the FIC Act must comply fully with its requirements.
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FSCA inspections revealed non-compliance with FICA
The FSCA says it conducted inspections on Prime as well as Wealth as part of its ongoing supervisory activities. The inspections revealed the entities to be in breach of these provisions of the FIC Act:
- Sections 42(1) and (2) read with section 21(1): Accountable institutions must develop, document, maintain and implement a risk management and compliance programme for anti-money laundering and counter-terrorist financing. Although both institutions developed the programmes, they were found to be deficient and failed to outline how they would comply with various FIC Act requirements. In addition, neither institution could demonstrate that its programme was implemented effectively.
- Sections 21B, 21C, 21F and 21G: The FIC Act requires accountable institutions to conduct customer due diligence which include obtaining beneficial ownership information, establishing if the clients or beneficial owners of clients are politically exposed persons and conducting ongoing customer due diligence. Both institutions failed to conduct the requisite customer due diligence. Prime failed to establish and verify beneficial owners of clients who are legal persons and trusts. Wealth failed to conduct ongoing due diligence and to verify client information to determine whether or not certain clients are politically exposed persons.
- Section 28A read with sections 26A – 26C: Accountable institutions are required to scrutinise their client information to determine if any of their clients are listed on targeted financial sanctions lists. Wealth failed to scrutinise client information against the United Nations Security Council Targeted Financial Sanctions Lists (TFSL) published under the Protection of Constitutional Democracy Against Terrorist and Related Activities Act, as required.
- Section 42A: The highest levels of authority within the entity must ensure that an accountable institution and its employees comply with the provisions of the FIC Act and the programme. Wealth’s senior management failed to meet this obligation.
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Directives to ensure compliance
The regulator also issued directives to both institutions to correct the identified deficiencies. Wealth also received a caution and a formal reprimand.
The FSCA says it considers Prime and Wealth’s compliance deficiencies to be serious breaches of the FIC Act.
“The requirement to understand and mitigate money laundering and terrorist financing risks through effective implementation of a risk management and compliance programme for anti-money laundering and counter-terrorist financing is vital not only because it assists accountable institutions to protect and maintain the integrity of their own businesses but also because it helps contribute to the integrity of the South African financial system as a whole.”
Additionally, the FSCA says, proper due diligence of all clients is crucial to help identify and mitigate against suspicious and criminal elements from infiltrating the financial system.
