How FSB combats market abuses

THE article “Slap on wrist for insider trading” (August 25) demonstrated a lack of understanding of the different market abuse offences. This response is intended to give insight into what the Financial Services Board has done in this area.

Prior to 2005, only insider trading was considered an offence, and the law at the time allowed for criminal prosecution and civil action.

In February 2005, the Securities Services Act No 36 of 2004 (SSA) came into operation, replacing the Insider Trading Directorate with the Directorate of Market Abuse. The SSA extended market abuse offences to include price manipulation and false reporting. It has since been replaced by the Financial Markets Act, effective from June. Under the SSA, the directorate investigated 87 insider trading cases, 34 price manipulation cases and 27 false reporting cases.

The directorate is chaired by the executive officer of the FSB and consists of representatives of the JSE, legal and accounting professions, insurance industry, fund management industry, banking industries, Association for Savings and Investments SA, the Reserve Bank and the Shareholders Association or similar organisation approved by the minister of finance.

Most of the cases it deals with are referred by the JSE’s surveillance and issuer services departments. After completing an investigation, the directorate can choose to close a case or refer it for legal action. Action could include referral of the matter to the criminal authorities, instituting civil action in the case of insider trading or referral to the enforcement committee of the FSB for administrative action. The committee can impose penalties, compensation orders and cost orders against people found to have contravened provisions of the statutes administered by the FSB, which include the provisions relating to market abuse.

Under the SSA, the committee imposed administrative penalties on 42 respondents, totalling about R46.9-million. The directorate referred two cases to the National Director of Public Prosecutions for criminal action and two respondents settled through civil action for about R300 000. The FSB has no jurisdiction over cases referred to the NDPP.

The FSB has made significant inroads in combating market abuse. To date, about R93-million has been recovered for market abuse offences (including the period prior to 2005). Penalties have ranged from R10 000 to R24-million. Respondents are also named and shamed in the media.

The FSB continually amends legislation to keep up to date with changes in financial markets. According to the World Economic Forum Global Competitive Survey, South Africa has been ranked as the world’s best-regulated financial market for three consecutive years since 2010. — Bert Chanetsa, deputy executive officer for investment institutions, FSB The editor reserves the right to edit letters. Correspondence must include your name, address and a phone number