In a December 2023 decision the Financial Services Tribunal upheld the debarment of the key individual of a fund of funds investment vehicle, Stringfellow Investments, on the grounds of his material failure to perform his oversight and management role in relation to the financial services provider as prescribed in the FAIS Act. A key individual has an onerous responsibility to ensure that the FSP complies with its duties and responsibilities as demonstrated in the FAIS Act and its General Code of Conduct. Therefore the fact that the KI was licensed for Category II activities and not the Category 1 activities of the FSP was irrelevant because the KI bore an oversight role in relation to the FSP generally.

Stringfellow Investments advised their clients to disinvest from legitimate and sound investments and to lend money to a company in which the main representative had an interest. The company and these debentures failed causing losses to members of the public, including many who had invested their pensions, of over R200 million. The KI was responsible to oversee (approve, sign-off and monitor) the investments made. The KI had no risk policies in place, nor any internal controls that included risk management procedures and systems, including effective procedures for risk assessment. The KI had not sought to develop systems and procedures to ensure that the FSP complied with the financial sector laws. The KI failed to employ resources and procedures that could reasonably have been expected to eliminate, as far as reasonably possible, the risk of financial loss to clients through professional misconduct or culpable omissions. The KI was not involved in the activities at all. He hardly ever went to the office and he knew nothing about the dealings he was required to supervise. When asked to produce a record of his supervision, the KI could not produce a single document. The KI was aware that the previous KI left because of the issue and yet he did not bother to interrogate it. The appointment was not “an easy gig” as the KI himself expressed it.

Because the KI’s failure to comply with his significant responsibilities and duties as KI caused the breaches alleged, the debarment for a period of eight years and the administrative penalty of R100 000 could not be faulted.

[Bhala v The Financial Sector Conduct Authority: The Financial Services Tribunal case no A12/2023]