FSB shifts blame for Steinhoff shock onto JSE
‘Creature of statutes’ can’t act in absence of audited financials
● The Financial Services Board says it can’t be blamed for failing to do anything about Steinhoff until it was too late.
Says Solly Keetse, who heads the board’s directorate for market abuse: “Steinhoff hasn’t published its 2017 audited financials. If you’re going to investigate false and misleading reports, you need to be able to establish what was misreported, and you can only gather that from the audited financials.”
He implies that if anyone’s to blame, it’s the JSE. Before its share price collapsed, Steinhoff was the seventh-largest Top 40 JSE stock, accounting for about 2.5% of the index.
“The companies that are listed on the JSE are regulated by the JSE,” says Keetse.
“In South Africa, we’ve got a selfregulating model in terms of which we regulate the JSE and the JSE regulates the companies.”
It’s the JSE’s job to alert the FSB, he says. “We’re called to investigate if there is a factual case of false and misleading reporting by a company listed on the JSE in terms of its audited financial statements.”
The board only investigates what is reported to it by the JSE.
“The JSE has market surveillance systems. We don’t have any market surveillance systems. We come after the fact, after the
JSE has uncovered possible market abuse.”
Why were problems at Steinhoff not picked up sooner?
“The JSE does market surveillance,” says Keetse. “You’ll have to speak to them.”
The head of market surveillance for the JSE, Shaun Davies, declined our request for an interview.
Steinhoff moved its primary listing from the JSE to Frankfurt two years ago, but even before then German authorities had raided its offices and begun investigating irregularities.
Allegations of accounting fraud were in the air. Should this not have alerted the FSB?
“We’re a creature of statutes,” says Keetse. “We investigate market abuse after it has been reported to us by the JSE.
“We don’t investigate fraud, which is a criminal offence.”
He says Steinhoff was being investigated in Frankfurt by the equivalent of South Africa’s National Prosecuting Authority, not by the FSB’s counterpart in Germany.
One wonders how damaging to the cause of financial and corporate oversight the government’s emasculation of the NPA’s specialised commercial crimes unit has been.
“I would rather I didn’t comment on that,” says Keetse.
Might the FSB have expected the NPA to begin a similar investigation into Steinhoff as its German counterparts, particularly as the then international behemoth was being run from Stellenbosch?
“I don’t know if the NPA was aware of anything,” he says.
In spite of the shock waves that the Steinhoff collapse has sent around South Africa, the FSB has not yet been in touch with oversight authorities in Frankfurt or the Netherlands, where, in September, a court was asked to order an investigation of Steinhoff’s annual accounts.
“It’s early days in our investigation,” Keetse says. “We’re gathering facts.”
One wonders if the FSB is out of its depth in terms of its capacity to conduct an investigation of such formidable complexity quickly and efficiently.
Keetse says that its investigations of market abuse have seen penalties of R100-million imposed on companies that have broken the law.
“So we have the capacity to investigate. But we are a creature of statutes.
“We have a mandate in terms of the Financial Markets Act, and we carry out that mandate.”
Does the mandate prevent the FSB from being more proactive?
“We can only do what the statute says we can do,” says Keetse. “We don’t go outside that.”
Will the FSB be investigating the apparent failure of Steinhoff’s star-studded cast of directors to carry out their fiduciary duties?
“We look at anybody who may have published false and misleading statements with regard to the company,” he says.
At the end of the FSB investigation, could we see executives and directors going to jail?
“Market abuse is a criminal offence, but we can also impose administrative sanctions, which is what the FSB normally imposes,” he says.
“If you want a quick resolution then your best bet is administrative sanctions.”
Would the FSB like to see those found to be responsible going to jail as a deterrent?
“All we can do is refer those who have been found guilty through our investigation to the NPA.”
He says the board will work “very closely” with the JSE in its investigation.
He says the JSE alerted the FSB when the announcement of Steinhoff CEO Markus Jooste’s resignation was made.
But there were warnings long before this. The question has to be whether these warnings should have been picked up and investigated before the CEO bailed and caused such destructive panic in the markets.
“Maybe the JSE has its own reasons why they did not feel a need to deal with this any other way,” he says.
He says the FSB was not aware of any warnings.
Apart from investigations begun by authorities in Germany in 2015, at least one respected retail analyst in South Africa wrote a report in 2013 detailing serious concerns, as did at least one prominent financial journalist.
Shouldn’t the FSB’s research department flag reports like this and at least discuss them with the JSE? After all, they do meet every second week, according to Keetse.
“We deal with facts,” he says. “Was there an instance of misleading reporting, yes or no? If there was, then we investigate. If there wasn’t, then it’s speculation.”
The result, as with Steinhoff, is that by the time they eventually swing into action, the damage has been done. Is it time to change the model?
“The self-regulatory organisation model is used worldwide, and it works,” he says.
Would we be sitting with the Steinhoff collapse if it worked?
South Africa, in terms of the regulation of securities markets, was rated No 1 for five years consecutively from 2010 by the World Economic Forum, he says.
“That shows you that our self-regulatory organisation model works.”
Or not.
We regulate the JSE and the JSE regulates the companies Solly Keetse Head of FSB’s directorate for market abuse