From CompliNEWS | Financial Service Intelligence Watch
Key lessons for compliance officers: Veracity Markets and Nirvesh Financial Services sanctions
Compli-Serve
For compliance officers, the sanctions issued by the Financial Sector Conduct Authority (FSCA) against Veracity Markets, its directors, Nirvesh Financial Services, and its key individuals underscore the critical nature of adhering to regulatory standards and the serious consequences of failing to do so. Here are essential learnings:
- Necessity of Authorisation – Engaging in over-the-counter (OTC) derivative transactions, such as offering Contracts for Difference (CFDs) to clients, necessitates explicit authorisation under the Financial Markets Act, 2012. Organisations must verify they hold the correct authorisation to provide, originate, issue, or sell any OTC derivatives within South Africa.
- Accuracy of Information – Providing accurate information to regulatory bodies and the public is paramount. Misleading statements, whether on websites or in communications regarding services and partnerships, can lead to severe penalties. Compliance officers must ensure all public-facing information is verified and truthful.
- Conducting Business Under Authorised Names – Financial services must be conducted in the name of the Financial Service Provider (FSP) and not under the juristic representative’s name. This requirement aims to maintain clarity and accountability within the financial services sector.
- Provision of Correct Information to Regulators – During investigations or regulatory checks, providing false or incorrect information to the FSCA or any regulatory body constitutes a serious offence. Transparency and honesty are crucial when dealing with regulatory authorities.
- Responsibility of Oversight – FSPs are responsible for ensuring that their representatives comply with applicable laws and codes of conduct. A lack of oversight or failure to enforce compliance can result in sanctions against the FSP.
- Compliance with Directives – Adhering to directives issued by regulatory authorities, such as ceasing certain activities during investigations and ensuring client funds are returned promptly, is crucial. Cooperation with regulatory bodies can impact the outcome of investigations and the severity of sanctions.
- Enforceable Undertakings and Penalties – The acceptance of enforceable undertakings, such as not participating in the financial services industry for a set period, alongside financial penalties, serves as a remedy and deterrent for non-compliance. Compliance officers must understand the implications of these undertakings for their organisations and individuals involved.
- External Audits and Compliance Officers – Implementing additional compliance measures, such as conducting audits by independent experts and appointing external compliance officers, can be conditions for continuing operations post-investigation. These measures help in strengthening compliance frameworks and ensuring adherence to regulatory standards.
The case emphasises the importance of compliance officers in guiding their organisations through the complex regulatory landscape, ensuring adherence to laws and regulations, and implementing robust compliance programmes to prevent future violations.