Author: Gary Moore
Date: 16 October 2016
The Financial Advisory and Intermediary Services Act, 2002[1] says the Registrar[2] may by notice declare a business practice undesirable for any or all authorised[3] financial service providers.[4] After that a provider may not carry on the practice.[5] The Registrar may direct a contravening provider to rectify anything arising out of carrying on the practice.[6] This is subject to a proviso, the meaning of which entails referral to eight separate substantive provisions, and 18 definitions, in five different statutes to understand. The effect of the proviso[7] is that the Registrar may not order payment of compensation for financial loss or a penalty for insider trading, but it does not expressly say so: It says the Registrar may not make an order contemplated in a provision of another law[8] which says the “enforcement committee” (defined in the latter as the committee established in terms of a provision of yet another law[9] saying the Board, defined in the first-mentioned law as the Financial Services Board,[10] must establish a committee for enforcing compliance with laws regulating financial institutions and provision of financial services,[11] in accordance with yet another provision of the last-mentioned law[12]) may—
Order a “respondent” (defined by reading seven definitions in the three laws[13] as a person identified by the Registrar or Directorate of Market Abuse as having allegedly contravened a financial-institutions law[14]) to pay a person who suffered patrimonial loss a compensatory amount determined by the committee to make good the loss;[15] or
If the respondent contravened a provision about insider trading in the market-abuse chapter of still another law[16] (read with three definitions in another provision of that chapter of the latter law[17]) order the respondent to pay in accordance with yet another provision thereof to the Board (also defined in the latter[18]) an administrative sanction up to the profit “the person”, “such other person” or “insider” (being persons referred to in the said specified provision[19]) made or would have made if he had sold the “securities” (extensively defined[20]), or the loss avoided through the dealing; plus up to R1m adjusted by the Registrar annually to reflect the Consumer Price Index[21] plus thrice the profit-or-loss; and interest; and costs on a scale determined by the committee.[22]
It is so that cross-references in a law to other laws can shorten the language of that law by avoiding repetition of the others.[23] But to have to refer to eight separate substantive provisions, and 18 definitions, in five different statutes to identify in the proviso[24] the limitation on the Registrar’s powers is so circuitous and burdensome that the proviso contravenes the Rule of Law principle that a law must be clear and accessible to those bound.[25]
The Act says the Registrar may, in order to ensure compliance with or prevent a contravention of the Act, issue a “directive” to any person to whom the Act applies. A directive may apply generally or to a particular person, and takes effect on a date determined in it by the Registrar. In event of a departure from administrative fair-procedure rights to prior notice or the like and to comment,[26] the directive must say so with reasons. Where the directive is issued to ensure protection of the general public the Registrar must publish it on the website and such other media as he deems appropriate to ensure the public may easily access it.[27]
This confers an unduly broad discretion. Discretionary power can be broad where relevant factors are too numerous or varied to identify in advance or are clear, or where the decision-maker has relevant expertise.[28] But this power to issue a directive is unfettered and its scope cannot be determined, and it may lead to arbitrary exercise of the power, in violation of the Rule of Law principle that one should not be subject to arbitrary discretionary powers.
The Act says the Minister after consulting the Registrar may by notice exempt a provider, representative or category thereof from provisions of the Policyholder Protection Rules made under the Insurance Acts[29] on conditions the Minister may determine.[30]
This undermines the Rule of Law concern that laws should apply generally and not benefit select individuals.[31] It authorise discretionary exemptions, and unjustifiably limits the fundamental right to equal protection of the law,[32] a Rule of Law principle.
[1] Financial Advisory and Intermediary Services Act 37 of 2002.
[2] Executive officer of the Financial Services Board. Financial Advisory and Intermediary Services Act s 1(1) sv “registrar” read with Financial Services Board Act 97 of 1990 ss 1 sv “executive officer” and 13(1)(a) and (3)(a).
[3] By having been granted authorisation as a financial services provider by the issue of a licence. Financial Advisory and Intermediary Services Act s 1 sv “authorised financial services provider” read with s 8.
[4] The Registrar must be guided by the principles that the practice directly or indirectly has or is likely to have the effect of harming relations between providers and clients or the public or of unreasonably prejudicing, deceiving or unfairly affecting a client; and that, if it is allowed to continue, an object of the Act will or is likely to be defeated. The Registrar may not declare a practice undesirable before gazetting his intention with reasons and an invitation to interested persons to make representations. Financial Advisory and Intermediary Services Act s 34(1)–(3).
[5] Financial Advisory and Intermediary Services Act s 34(4).
[6] Financial Advisory and Intermediary Services Act s 34(5).
[7] Financial Advisory and Intermediary Services Act s 34(5) proviso.
[8] Financial Institutions (Protection of Funds) Act 28 of 2001 s 6D(2)(b).
[9] Financial Institutions (Protection of Funds) Act s 1 sv “enforcement committee”.
[10] Financial Services Board Act 97 of 1990 s 1 sv “Board”.
[11] Financial Services Board Act s 10(3).
[12] Financial Services Board Act s 10A.
[13] Financial Institutions (Protection of Funds) Act s 1 svv “respondent,” “registrar”, “directorate” (read with s 85) and “law” para (b) read with para (a)(v) read with Financial Services Board Act s 1 sv “financial institution” para (a)(xii) read with Financial Advisory and Intermediary Services Act s 1(1) svv “authorised financial services provider” and “representative”.
[14] Financial Advisory and Intermediary Services Act.
[15] Financial Institutions (Protection of Funds) Act s 6D(2)(b)(i).
[16] Financial Markets Act 19 of 2012 Chap X “Market abuse” s 78.
[17] Financial Markets Act s 77 svv “deal”, “inside information” and “insider”.
[18] Financial Markets Act s 1 sv “Board”.
[19] Financial Markets Act s 78 references to “the person”, “such other person” and “insider”.
[20] Financial Markets Act s 1 sv “securities”.
[21] See for example Consumer Price Index, August 2016. Statistics South Africa website, sub nom “Statistical publications,” http://www.statssa.gov.za/?page_id=1854&PPN=P0141&SCH=6544.
[22] Financial Markets Act s 82.
[23] See also the Interpretation Act 3 of 1957, the long title of which is “To consolidate the laws relating to the interpretation and the shortening of the language of statutes.”
[24] Financial Advisory and Intermediary Services Act s 34(5) proviso.
[25] Affordable Medicines Trust and Others v Minister of Health and Another, 2005 (6) BCLR 529 (CC) para [108].
[26] In terms of Promotion of Administrative Justice Act 3 of 2000 s 3(2) or s 4(1), (2) and (3).
[27] Financial Advisory and Intermediary Services Act s 38C.
[28] Affordable Medicines Trust and Others v Minister of Health and Another, supra, paras [33], [34].
[29] Long-term Insurance Act 52 of 1998 s 62 and Short-term Insurance Act 53 of 1998 s 55.
[30] Financial Advisory and Intermediary Services Acts 44(5).
[31] President of the Republic of South Africa and Another vs. Hugo, 1997 (6) BCLR 708 (CC) para [102].
[32] Constitution, Ch 2 (Bill of Rights), s 9 (Equality): s 9(1).
Gary Moore
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