Regulator suspends operating licence of Ecsponent Financial Services
The Financial Services Conduct Authority has suspended the operating licence of Ecsponent Financial Services (EFS) for a period of two weeks.
Ecsponent Financial Services is a subsidiary of JSE-listed financial services group Ecsponent Limited.
In a note to shareholders on Wednesday afternoon, Ecsponent said an investigation by the regulator involving EFS has been ongoing for "almost 7 years".
"Preliminary findings have been issued by the FSCA and EFS has submitted comprehensive replies in respect thereof to the FSCA. Barring the temporary suspension as aforesaid, the final outcome of the deliberations remains uncertain and, as a result, no further information is disclosed at this time."
The asset manager did not provide further information.
A subsequent statement by the FSCA said it had been investigating Ecsponent after receiving "several complaints" from the public. It found that Ecsponent FS had been marketing high-risk preference shares in its holding company, JSE-listed Ecsponent Limited, to pensioners. This had been done without appropriate suitability testing to check that no undue risk was posed to the client, said the regulator.
Ecsponent Limited does not fall under the jurisdiction of the FSCA, so the regulator focused its attention on the advice and intermediary activities of Ecsponent FS, which is an authorised financial services provider.
"During interactions with potential clients, Ecsponent FS staff provided advice on the investment product, i.e. the classes of preference shares. Whilst the classes of shares that paid monthly dividends were popular amongst pensioners as they mimicked a monthly pension payment, the one major difference between them and a pension investment was that they exposed investors to substantially more risk.
"It is the view of the FSCA that Ecsponent FS paid insufficient attention to whether or not these shares were suitable investments for their clients," the FSCA said.
The investigation found that due to various factors including the size of Ecsponent Ltd’s business; its capital structure; and other investment considerations, Ecsponent Ltd’s shares were high-risk and not suitable for marketing as an investment to clients without appropriate suitability testing.
While Ecsponent FS eventually did roll out mandatory suitability testing, material changes to Ecsponent Ltd's financial position meant it was of little value, said the FSCA, leaving vulnerable clients unlikely to redeem their investments without loss.
* This article was updated at 19:25 on 21 May to include comment from the FSCA.