The Prudential Authority imposed administrative penalties on two insurance companies for late notification of termination of director appointments, as required by section 16 of the Insurance Act of 2017. The penalties imposed were globular and not specific to the various alleged contraventions of the Act. In January 2025 the High Court upheld the findings of the Financial Services Tribunal that a portion of the total penalties imposed should be reduced because the penalties were excessive and the late notification contraventions had no external impact.
Between April and October 2020, the insurers terminated the appointment of four directors without notification to the Prudential Authority within 30 days of the respective dates of termination. The Prudential Authority did not set out specific penalties for specific contraventions, but instead imposed a “globular penalty” without detail of how the total penalty was calculated. The Tribunal and the Court were faced with the difficulty of determining which part of the penalty related to the section 16 contravention. The Tribunal looked at the total administrative penalty imposed on the life insurer and assumed that the penalty for contravening section 16 “would have been about R1 million per company, half of which was suspended”. The section 16 penalties were challenged because the penalties imposed were excessive and inappropriate.
The Tribunal considered that there was “no indication that the PA, the company, its shareholder or policyholders were in any way affected by the breach” and reduced the portion of the total penalty which it attributed to the specific contravention to R250 000. The court found that the “external effect is a factor to consider”, and the Prudential Authority could not demonstrate a single negative effect of the contravention two years after the fact. The reduced penalty was therefore rational in relation to the contravention.
Taking the effect of a contravention into account is the right way to deal with penalties.