PUBLIC PROTECTOR: Editorials: Edition: July / September 2019

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Scathing
report

It’s not over until it’s over.

For the sake of its credibility,

the FSCA simply must win the next round.

Amidst the outpourings of capture and corruption at state agencies, it would have been a relief to discover that it least one is unblemished. But now there’s a cloud of “systemic corporate-governance deficiencies” that hangs over even the Financial Services Board.

The cloud is created by the report of Public Protector Busisiwe Mkhwebane into allegations of maladministration, abuse of power and improper conduct by former FSB executive officer Dube Tshidi. So damning are her conclusions that the Financial Sector Conduct Authority has no choice than to take the report on review.

Were the report’s findings allowed to stand – they might or might not, partially or fully, depending on the review’s outcome – the damage to the credibility of the FSCA would be indelible. And this for a new body, the successor to the FSB, charged with supervision of the financial sector’s market conduct and which continues its role as regulator of retirement funds.

Here is a test for the efficacy of the Public Protector’s supervision of the FSCA’s supervision; a salutary instance of the guardian’s guardian. Tshidi is a member of the FSCA transitional management committee, set up to smooth the transition from FSB to FSCA. While the cloud hangs, and Tshidi isn’t suspended from the committee, the intended smoothness can roughen.

The report represents a storm cloud already broken by the fact of publication. Whatever happens with the review, there’ll be a time delay for the mud to stick. National Treasury, midwife to the FSCA, should think harder than the review for remedy to the reputational damage duly done.

Some proactive suggestions:

• Say good-bye to Tshidi. He’s way beyond retirement age and, for avoidance of interest conflicts, shouldn’t be near the committee that makes decisions about a report largely centred on his behaviour;

• Explain whether legal fees for the review will be paid by the FSCA (funded by levies on regulated institutions, significantly including retirement funds) or by identified parties in their personal capacities;

• Conduct an independent inquiry into the circumstances by which many millions of rand were claimed respectively from Old Mutual, Sanlam and Alexander Forbes, and how these monies were disbursed;

• Commission a forensic audit that will quantify the amounts paid to attorney Tony Mostert and his law firm, in respect of the fund curatorships for which he’d been appointed, and disclose these relative to the benefits received by the numerous funds.

The report avers that, by 2011, Mostert and his firm had earned some R240m over the previous six years. The fees earned subsequent to 2011, it’s submitted, is not known because both Mostert and Tshidi “steadfastly refused to make any disclosure whatsoever”. During the entire period up until the present, might something around R400m – give or take a few tens of millions here and there – sound too outrageous a guess?

For the FSCA, reliance on the review carries risk. In court actions, outcomes are uncertain until arguments are adjudged. And the arguments of the FSCA might well be countered in defence of the Public Protector. That the FSCA has applied for review on grounds that the report is “riddled with inaccuracies” and “did not take into account any of the submissions made”, the Public Protector has yet to respond.

In the FSCA’s favour is Mkhwebane’s shoddy record. But on the face of it, this 96-page report is in marked contrast. It’s accompanied by an extensive list of documents examined and interviews held by her. In response to the allegation by Tshidi that she had not heard evidence under oath and that hearsay remained untested by cross-examination, she insisted: “I follow an inquisitorial process in my investigations.”

Presumably, she’d been well fed by representatives of Simon Nash whose criminal trial for the stripping of pension-fund surpluses has entered its ninth year. The contention of Tshidi and Mostert that the real complainant to the Public Protector was Nash, rather than Economic Freedom Fighters leader Julius Malema, Mkhwebane dismissed as “immaterial”.

Against the FSCA is the risk of what might emerge during the review proceedings. Amongst the missiles possibly lying in wait are a report by investigator Paul O’Sullivan supported by financial statements of the A L Mostert law firm, as well as legal examinations of the Public Finance Management Act and the Inspection of Financial Institutions Act in the context of suspected collusive activities.

Key findings of Mkhwebane include:

• Improprieties and/or irregularities in the nomination of curators by Tshidi;

• A failure by Tshidi to discharge his regulatory duty “to properly manage the possible or perceived conflict of interest between Mr Mostert’s role as curator and the appointment of his own law firm to assist in the administration of pension funds placed under curatorship”;

• When written questions were posed to the Minister of Finance, the answers that Tshdi provided had caused the minister to mislead parliament.

Substantiating the broad compliant of improper conduct, the report opined: “Due to the nature of the position that (Tshidi) held, he was required to always act with the utmost integrity and in a manner which encouraged a high level of ethics and trust. As the ‘face’ of the Regulator, he was required to hold himself to a higher standard than those that he regulated.”

Under the circumstances of such a wallop, Mkhwebane has come up with remedial actions that seem surprisingly mild. Fair enough that there should be a wider pool of prospective curators from which to draw through a competitive and transparent bidding process, and that the FSCA adopts a policy to regulate the nomination process of curators.

These are hardly the bombshells requiring review. Neither is the remedial action that the FSCA commissioner – Abel Sithole, who also chaired the FSB board — takes “corrective action against the officials implicated in this report and puts in corrective measures to avoid recurrence”. The officials and measures aren’t specified.

That’s so up-in-the-air, especially with no attempt to follow the money. The excitement will be in the review process when the FSCA’s defence of its reputation is put to the test. Until then, Mkhwebane has handed a victory to Malema.

This article, by the TT editorial director, was first published by the FM on April 15.

Mkhwebane . . . for review yet again

Malema . . . victory for now

The report avers that, by 2011, Mostert and his firm had earned some R240m over the previous six years. The fees earned subsequent to 2011, it’s submitted, is not known because both Mostert and Tshidi “steadfastly refused to make any disclosure whatsoever”.