In a landmark case before the Gauteng Division of the High Court, the Financial Sector Conduct Authority (FSCA) sought to enforce an administrative penalty against several foreign individuals and a foreign partnership. The matter stemmed from the publication of a report that was widely distributed in South Africa, resulting in a dramatic drop in the share price of a major South African bank and a loss of over R25 billion in market capitalisation. The FSCA's investigation concluded that the foreign parties had made false, misleading, or deceptive statements in breach of the Financial Markets Act and imposed a R50 million administrative penalty.
Issues in Dispute
The core dispute centred on whether the FSCA had the legal authority to impose administrative penalties on foreign persons (peregrini) who were not physically present in South Africa, but whose conduct had a direct and significant impact on the South African financial markets. The Financial Services Tribunal had previously ruled that, although the FSCA had jurisdiction over the conduct, it did not have jurisdiction over the persons of the foreign respondents and set aside the penalty.
Court's Finding
The High Court overturned the Tribunal's decision, holding that the FSCA does have jurisdiction to impose administrative penalties on foreign persons in cases where:
- The requirements of section 167 of the Financial Sector Regulation Act are met;
- Notice of the intention to impose a penalty is delivered to the foreign party by any means, including electronic communication; and
- There is a sufficiently close connection between the foreign conduct and South Africa, making it appropriate and convenient for the FSCA to exercise its regulatory powers.
The matter was sent back to the Tribunal for reconsideration on the merits.
Reasons for the Decision
The court recognised that the traditional common law requirement for personal service of process on a foreign party while physically present in South Africa was outdated in the context of modern, digital financial markets. The court developed the common law to allow for jurisdiction to be established where notice is delivered by any means, including electronic means, provided there is a close connection between the conduct and South Africa. The court emphasised that effective regulation would be undermined if foreign actors could avoid accountability simply by remaining outside the country's borders, especially when their actions are deliberately aimed at causing harm within South Africa.
Why This Judgment is Crucial for the FSCA
This judgment is a watershed moment for the FSCA. It affirms and expands the FSCA's ability to regulate and enforce financial sector laws against foreign entities whose actions materially affect South African markets. By modernising the approach to jurisdiction, the court has empowered the FSCA to take decisive action against cross-border misconduct, closing a significant regulatory gap. This ensures that the integrity and stability of South Africa's financial system are protected, even in the face of globalised and digitally orchestrated wrongdoing. The decision is a vital step in safeguarding the South African public and economy from harmful conduct originating beyond its borders.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
