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THE FINANCIAL SERVICES TRIBUNAL

 

CASE NO: A2/2024

 

In the matter between:
COVER AND ABOVE (PTY) LTD	FIRST APPLICANT
SIYABONGA ABE BALOYI	SECOND APPLICANT
and
FINANCIAL SECTOR CONDUCT AUTHORITY	RESPONDENT

 

Tribunal:                 Judge President D Kgomo; Judge C Pretorius; Adv M Mphaga

 

Summary:   Application for reconsideration in terms of section 230 of the FSR Act 9 of 2017 against the decision of the Financial Sector Conduct Authority - withdrawal of authorisation of applicant as a financial service provider in terms of section 9 (1) read with section 9 (2) of the Financial Advisory and Intermediary Service Act No 37 of 2002.

 

DECISION

 

1.                  The Applicants apply for the reconsideration of a decision of the Financial Sector Conduct Authority("the Authority") in terms of section 230 of the Financial Sector Regulation Act, Act No 9 of 2017 ("the FSR Act"). The decision to withdraw the authorisation of the First Applicant as a financial services provider on 11 January 2024 was made in terms of section 9(1) read with section 9(2) of the Financial Advisory and Intermediary Services Act No 37 of 2002 ("the FAIS Act"). It found that the Second Applicant, the sole key individual and director of the Financial Services Provider(" FSP"), no longer complied with the fit and proper requirements of honesty and integrity of character as required in terms of section 8 A of the FAIS Act read with section 8(1) of Board Notice 94 of 2017 relating to:

 

Determination of fit and proper requirements for financial services, as well as section 2 and section 3(1) (d) of the General Code of Conduct for Authorised FSP's and representatives- Board Notice 80 of 2003.

 

The further finding was that the FSP had contravened section 15A of the FSB Act by failing to pay the prescribed levy.

 

The Authority concluded that the key individual, Mr Baloyi was no longer fit and proper as envisaged in section 13(2)(a) of FAIS which requires a FSP to, at all relevant times be satisfied that its representatives and key individuals are, when rendering a financial service on behalf of the FSP, competent to act and comply with the fit and proper requirements.

 

BACKGROUND:

 

2.                   The Second Applicant is the sole director and shareholder of the First Applicant. The First Applicant was appointed as a broker for AVBOB Mutual Assurance Society ("AVBOB"). AVBOB complained to the FSP that there was a problem with the applicants' conduct whilst it was appointed as a broker at AVBOB. This complaint was accompanied by a forensic report, dated 22 February 2022.

 

3.                   According to the findings of AVBOB's forensic investigation the Second Applicant, Mr Baloyi, had made fraudulent misrepresentations of material information regarding certain policies in his position as key individual of the First Applicant. The Authority found that Mr Baloyi had submitted unauthorized new business in the form of the disputed policies to Avbob.

 

4.                   The Authority found that Mr Baloyi had, as sole director of the First Applicant, and 100% shareholder, as well as being the key individual in the business, failed to act honestly and with integrity.

 

5.            According to The Authority he had contravened:

 

5.1           Section SA of the Financial Advisory and Intermediary Services Act, No 37 of 2002 ("FAIS Act"), read with section 8 (1) of Board Notice 194 of 2017:

 

Determination of fit and proper requirements for financial services providers.

Section BA of the FAIS Act provides:" An authorised financial service provide, key individual, representative of the provider and key individual of the representative must-(a) continue to comply with the fit and proper requirements); and (b) comply with the fit and requirements relating to continuous professional development"

 

Section 2 of Board Notice 80 of 2003 provides: ' provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry."

 

5.2           The First Applicant was liable for payment of a levy under section 15A of the Financial Services Board Act, 1990, ("FSB Act") and has failed to pay the levy and interest.

 

6.                    The forensic report from AVBOB, received by the Authority, had indicated that on 14 February 2022 the first applicant had been appointed as AVBOB's broker.

 

7.                    According to the forensic report AVBOB investigated allegations of improper conduct by the licensee, after receiving a request on 30 September 2022 from its Operations Support Insurance Department.

 

8.                   Courtesy calls were conducted to alleged clients, whose business was submitted to AVBOB by the licensee. Six of the alleged clients indicated that they had no knowledge of the policies.

 

9.                  Three of the disputed policies were submitted in the names of Mr Dumisani Ngcobo, Mr Siboniso Qwabe and Ms Thobile Mthimkhulu.

 

10.               In all three matters Mr Baloyi, the Second Applicant, was the intermediary of record that rendered financial services and submitted AVBOB Life Insurance Policies as follows:

 

10.1         Policy A[...] in the name of Mr Ngcobo which records that he had applied for the policy on 3 April 2022 with a monthly premium of R327.75, covering Buyisile Ngcobo and Ludandokhule Mzulani and appointed Buyisile Ngcobo as a beneficiary. On 11 October 2022 Mr Ngcobo was called by Forensics to confirm his knowledge of the policy. He informed them that all his details were correct as it was his name, surname, identity number and contact details that were on the policy.

 

He denied that he knew the people covered under the policy and the person nominated as the beneficiary was unknown to him.

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He further declared that Mr Baloyi, the intermediary, was unknown to him and that he had no knowledge of the policy.

 

10.2         Policy AL8113333X1 in the name of Mr Qwabe which records that he had applied for the policy on 21 April 2022 at a monthly premium of R106.00. The policy covered Sdalo Qwabe and Nokukhanya Nene and appointed Sdalo Qwabe as a beneficiary.

 

Mr Baloyi was the intermediary of record that allegedly rendered financial services to Mr Qwabe and signed to that effect.

 

On 11 October 2022 the Forensics called Mr Qwabe, who confirmed all his details were correct, that is his name , surname, identity number and contact details were correct on the policy. He informed Forensics that he did not know the people insured under this policy.

 

He confirmed that Mr Baloyi, the intermediary, who purportedly had rendered financial services to him, was unknown to him and the policy was taken out without his knowledge.

 

10.3         The third policy was AL8069659X7 and submitted in the name of Ms Mthimkhulu. According to the policy she had applied for the policy on 13 March 2022, with a monthly premium of R 133.00. Sphindile Zungu was nominated as beneficiary. Mr Baloyi was the intermediary on record who had rendered financial services to Ms Mthimkhulu on 13 March 2022 and signed the policy in that capacity. On 14 October 2022 Forensics called Ms Mtimkulu, who verified her name, surname, identity number and contact details as set out in the policy. She informed Forensics that she did not know the nominated beneficiary on the policy. She did not know Mr Baloyi, who had purportedly rendered financial services to her and the policy was taken out without her knowledge and consent.

 

11.               Mr Baloyi was afforded an opportunity to respond to the above findings on 27 October 2022. His response was to the effect that the representatives working for the First Applicant had sold the above policies, and he had used his code as AVBOB took too long to issue the representatives with codes. Therefor he signed the business as intermediary with his code.

 

12.               After AVBOB had concluded the forensic investigation Forensics found that Mr Baloyi, the Second Respondent, had submitted fraudulent new business by adding fictitious insured lives to bolster the volume of business and commission as set out above. Mr Baloyi had misled AVBOB by submitting falsified AVBOB policy application forms without the knowledge and consent of the three clients as set out above.

 

13.                The Authority found that Mr Baloyi contravened section SA (a) of the FAIS Act dealing with honesty and integrity by intentionally and unlawfully misrepresenting to AVBOB that he had rendered financial services to Mr Ngcobo, Mr Qwabe and Ms Mthimkhulu. He had done so knowing that he had not rendered the financial services and that they had no knowledge of these policies.

 

He submitted to AVBOB that the above-mentioned clients had authorised the monthly premiums to be deducted from their salaries and bank accounts, whilst knowing that there was no such authorisation.

 

14.               Mr Baloyi submitted several grounds for reconsideration. The first is that the conclusion that Mr Baloyi had colluded with his employees is not true. Secondly that the finding that Mr Baloyi is not a fit and proper person is wrong. Further that the Authority's conclusion that Mr Baloyi had submitted fraudulent business to bolster the business and commission is wrong and the Authority was incorrect to accept AVBOB's conclusion. The fact that the FSP failed to pay levies could not have been the basis for the withdrawal of the licence, according to Mr Baloyi.

 

15.               Mr Baloyi submitted that due process was not followed as the Authority relied on AVBOB's Forensic investigation and report. Paragraph 8(2) of BN194 which applies to Mr Baloyi, provides that in representative is fit and proper the Authority may refer to "any information" in possession of the Authority or brought to the Authority's attention.

 

16.                AVBOB investigated Mr Baloyi's conduct, which occurred between February and October 2022. During that time, he was still a representative of the FSP contracted as a broker for AVBOB. Mr Baloyi was afforded an opportunity to state his case before action was taken by the Authority.

 

17.               A further investigation by the Authority would have served no purpose as it was common cause, admitted by Mr Baloyi that he had indicated to AVBOB that he had acted as an intermediary in the three above­ mentioned cases, whilst admitting that he had in fact not acted as intermediary in these instances.

 

18.               Mr Baloyi, for the first time in the present application and Heads of Argument adapted his original version by contending that certain Nobuhle Mkhize is the person who had submitted the unauthorised business to AVBOB. This fact was not submitted during the investigation nor to the Authority when he responded to the notice of intention to withdraw his licence. He was afforded an opportunity on 27 October 2022 by the Forensics of AVBOB to respond to the findings against him. He, inter alia, stated that representatives hired by him were the ones who had sold these policies to Mr Ngcobo, Mr Qwabe and Ms Mthimkhulu. His explanation was that the business was issued with him as intermediary as AVBOB had taken too long to issue these representatives' codes which resulted in him signing as intermediary.

 

19.               The result of the Forensic investigation was that AVBOB concluded that Mr Baloyi fraudulently submitted new business by adding fictitious lives to insurance policies which were unknown to the clients. This he had done to boost the volume of business and commission. He had submitted falsified AVBOB policy applications containing misleading information to AVBOB. The clients had no knowledge of and had not consented to these policies.

 

20.               These actions of Mr Baloyi convinced firstly AVBOB and then the Authority that Mr Baloyi lacks honesty and integrity as required of an authorised financial services provider in terms of section 8A(a) of the FAIS Act, as well as the provisions of section 8(1)(a) of Board Notice 194of2017.

 

21.                This Tribunal had carefully considered all the facts presented, not only to AVBOB and the Authority, but the new facts represented in the application and Heads of Argument of the applicants. The Tribunal must agree with the respondent that the argument about Ms Mkhize is an afterthought and embellishment as it had never been mentioned before. He indicated that"... all thestaff members were sufficiently trained, vetted and coded except for one Nobuhle whose codes were still outstanding': This is at variance with what he had told Forensics on 27 October 2022.

 

This so-called new evidence is dismissed.

 

22.               Mr Baloyi was a key individual, who was an individual who the Authority had to approve. In the matter referred to by counsel for the applicant, Mr Jonker and the Registrar (November 2016) at paras 165 and 179 the Chairperson of the former Appeal Board(now Tribunal) had found:

 

"[165] ...A key individual therefore plays a critical role which must be performed with utmost good faith. That it shall and must protect its client's interests, serving with due care, skill and diligence is imperative. He or she is responsible for managing and or exercising oversight over all activities of the FSP and the people who serve as representatives of the particular licensee. The key individual has a legal duty to ensure that financial services are performed with standards of conduct similar to those of a trustee in relation to the interests of a trust"

 

"[179]... like it is the case with any other key individual of an FSP, who like Mr Jonker also deals with clients, serving their financial interests and their financial well-being, that legal duty is an onerous one"

 

23.                In this instance Mr Baloyi was the sole director and shareholder of the first applicant and the key individual who had contravened the above provisions. His dishonesty and lack of integrity when dealing with the three AVBOB assurance policies justified the Authority to withdraw the licence if the above principles are applied to the present matter.

 

24.               The Authority held that Mr Baloyi had contravened section 2 of the General Code of Conduct for authorised financial services providers and their representatives Board Notice 80 of 2003. The Authority found that Mr Baloyi had acted dishonestly by misrepresenting to AVBOB that he had rendered financial services to the above three policy holders whilst knowing that he had not done so. He submitted false information of clients and deceived AVBOB by doing so.

 

25.               The Tribunal finds that the Authority was correct in withdrawing the Licence. It finds that the Authority had correctly dealt with the dishonesty and lack of integrity of Mr Baloyi. There is no reason to interfere with the Authority's withdrawal of the licence on these grounds.

 

26.               The fact that the first applicant had not paid the levies under section15A of the Financial Services Board Act and is indebted in this regard to the amount of R18 011.61 makes it guilty of the contravention of this provision. Section 9(1) of the FAIS Act provides that:

 

"The registrar may ... at any time suspend or withdraw any licence including the licence of a licensee under the provisional or final suspension if satisfied, on the basis of available facts and information, that the licensee- (d) has failed to pay a levy; an administrative penalty or any interest in respect thereof."

 

Section15A of the Financial Services Board Act, No 97 0f1990 prescribes a number of requirements to be complied with and processes to be followed precedent to the imposition of the levy. It is common cause that these conditions were fulfilled; that the applicants defaulted in the payment and have not purged the default.

 

27.               There was no valid argument tendered as to why the applicants are not guilty of contravening this section of the Act. It is further common cause and admitted by the applicants that they had failed to pay the levy. The Authority's finding in this regard is justified and confirmed.

 

28.               The Authority's findings and withdrawal of the licence of the First Applicant cannot be faulted and is confirmed for all the reasons set out above.

 

The application is dismissed.

 

Signed on behalf of the Tribunal on 14 November 2024.

 

C Pretorius

Ltc Harms

Chairman

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