There is an urgent need to integrate legislation for financial services within Southern African countries to curb the proliferation of cross-border financial fraud, the Financial Services Providers’ Ombudsman said on Monday.
”The harmonising of legislation across Southern African Development Community [SADC] countries must be accompanied by effective enforcement,” ombudsman Charles Pillai said.
Speaking in Midrand at a conference on cross-border trade organised by the Law Society of South Africa’s legal education and development division, Pillai said many fraudulent financial schemes operate in countries that do not have appropriate or effective enforcement.
”Fraudsters also use the fact that authorities across jurisdictions do not communicate or are not able to effectively enforce decisions or judgements made in other countries.”
He said arising from the lack of adequate governance, South Africa has seen some major financial scandals that have sent shockwaves through the JSE Securities and turned innocent investors’ lives upside down.
”The Masterbond saga is one example that involved investments of more than 22 000 investors with total investments of more than R600-million.
”Established in 1984, the directors of Masterbond pretended that it was registered with the Reserve Bank,” said Pillai, whose office is charged with the investigation and adjudication of complaints in terms of the Financial Advisory and Intermediary Services (FAIS) Act.
In the Masterbond saga thousands of investors lost millions of rands, and a number of elderly people who lost virtually everything committed suicide, he said, adding that Masterbond is an example of many such a scam.
The extent of the scam led to the appointment of the Nel Commission of Inquiry, which recommended that tough legislation be introduced to protect consumers against both malicious and ignorant miss-selling of financial products.
Pillai told the conference that following the Masterbond scam, many other financial scams had been uncovered, including schemes such as Supreme Holdings, FundsTrust and ProPlace.
He said these were recent scams ”happening right in front of us whilst the FAIS Act is in place”.
”This shows that legislation is of no use without effective monitoring and enforcement.”
It is also imperative that this enforcement can be carried out across borders.
”We live in a global society and the transfer of funds takes place on a global basis, making the proliferation of financial fraud an unfortunate reality.”
Pillai said global interest in investing in Africa is expanding at an exponential rate.
”In order to encourage continued investment, it is important to set up a legislative framework within the SADC region that affords the protection of a speedy and enforceable complaints-resolution process like the FAIS Ombud’s Office.” — Sapa