Impact Financial Consultants CC and Another vs. Bam N O and Others

South Africa

30.04.2021

Civil

It is necessary to establish true nature of investments complained about before any final conclusions are reached, including questions related to compensation

The central issue in present matter is whether the Ombud for Financial Services (the Ombud), established in terms of Section 20 of the Financial Advisory and Intermediary Services Act, 2002 (the FAIS Act) committed a reviewable error in determining complaints lodged by each of the third to twentieth Respondents in terms of Section 27 of the FAIS Act. In 2015, several complaints were lodged with the Ombud (established in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (the FAIS Act)) against Impact Financial Consultants CC (Impact Consultants) and its principal member, Mr. Calitz (the applicants).

The applicants were authorised financial services providers as provided by the FAIS Act. The complaints arose in consequence of the collapse of an investment scheme involving Abante Capital (Pty) Ltd (Abante Capital) and the Relative Value Arbitrage Fund Trust (the RVAF Trust). In 2012, allegations of fraud perpetrated by Mr. Pretorius, a key figure in Abante Capital, were reported in the financial press.

Following the death of Mr. Pretorius and the liquidation of Abante Capital and the RVAF Trust, fraudulent conduct was established in relation to the investment scheme. The complainants alleged that Mr. Calitz, and by extension Impact Consultants, had negligently breached the duties imposed upon financial advisors by the FAIS Act and the General Code of Conduct for Financial Advisors and Representatives (the Code) enacted in terms of the FAIS Act. It was alleged that, Mr. Calitz had failed to undertake a due diligence assessment of the RVAF Trust and had negligently advised his clients to invest in a high risk and illegal scheme. This had resulted in the complainants suffering substantial losses. The Ombud upheld the complaints and ordered Impact Consultants and Mr. Calitz to pay compensation to each of the complainants. The Ombud refused leave to appeal against these orders, as did the chairperson of the appeal board of the Financial Services Board.

The applicants then brought a review application in the high court alleging, that the Ombud did not enjoy jurisdiction and had failed to consider that the losses suffered by the complainants were as a consequence of fraud on the part of Mr. Pretorius and not negligence on the part of Impact Consultants or Mr. Calitz. They alleged that, the Ombud had committed an error of law in respect of the bias upon which liability is determined in terms of the FAIS Act. The high court dismissed the review application and refused leave to appeal. The applicants filed an application for leave to appeal with the SCA.

The purpose of the FAIS Act is to provide assurance to consumers of financial services and financial products that those who render such services are subject to effective regulation and control. These broad objects and purposes are achieved by establishing a system of licencing and governance to which providers of financial and intermediary services are subject. Enforcement of the provisions is achieved by various mechanisms, including the establishment of an Ombud clothed with the power to investigate and adjudicate disputes and to provide remedies for regulatory non-compliance.

The Ombud is required to establish the nature of the investment made upon the advice of the advisory in order to determine whether it falls within the ambit of a financial product as defined by the FAIS Act. This is a foundational factual enquiry which enables the Ombud to decide upon the exercise of its jurisdiction to determine the complaint and to order any remedial compensation which may flow from such determination. In this instance, the Ombud had failed to do so, notwithstanding the investigative powers conferred by the FAIS Act.

It isnecessary to establish the true nature of the investments complained about before any final conclusions are reached, including in relation to questions related to compensation. The high Court ought to have found that the Ombud had committed a reviewable error and set aside the determinations. In the light of the absence of a factual basis upon which to determine the nature of the investment and therefore the Ombud’s jurisdiction, no purpose would be served by allowing an appeal to the Financial Services Board. Supreme Court set aside the determinations made by the Ombud and referred the complaints back to the Ombud for investigation and determination in accordance with the FAIS Act.

Tags : Ombud Financial Services Compensation

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