A warning to any company not based in South Africa
A recent high court ruling shows that foreign entities and companies can still face consequences in South Africa, despite their operations falling outside local jurisdiction.
This warning was highlighted by Mtho Maphumulo, a partner at Adams & Adams law firm in the dispute resolution department, with a specific focus on insurance and financial sector law matters.
Maphumulo said the case is a landmark moment for the Financial Sector Conduct Authority (FSCA) and how South Africa’s laws apply to foreign actors.
“The judgment makes it clear that distance does not guarantee immunity,” he said.
The matter arose from the FSCA’s enforcement action against several foreign individuals and a foreign partnership following the publication of a report titled ‘Capitec: A wolf in sheep’s clothing’ in 2018.
The report, widely circulated in South Africa, alleged serious issues at Capitec Bank. Its release triggered a dramatic fall in Capitec’s share price, wiping out more than R25 billion in market value before it recovered to end the day down by about 3%.
Following an investigation, the FSCA found the statements in the report to be false, misleading, or deceptive, in contravention of Section 81 of the Financial Markets Act, 2012.
Following the investigation, the FSCA imposed an administrative penalty of R50 million on the respondents.
However, the foreign parties challenged the decision, arguing that because they were peregrini (persons not present in South Africa), the FSCA had no jurisdiction over them.
In 2022, the Financial Services Tribunal agreed with this view, ruling that while the FSCA had jurisdiction over the conduct in question, it did not have jurisdiction over the people involved, and the penalty was set aside.
This raised the question of whether the FSCA could impose administrative penalties on foreign persons who are not physically present in South Africa but whose actions directly and significantly impact its financial markets.
Entites will be held accountable
Maphumulo noted that the High Court answered that question with a resounding yes, overturning the Tribunal’s decision.
It found that the FSCA does have jurisdiction over foreign entities where certain conditions are met:
- The requirements of Section 167 of the Financial Sector Regulation Act are satisfied.
- Notice of the intention to impose a penalty can be delivered to the foreign party by any means, including electronic communication.
- There is a sufficiently close connection between the foreign conduct and South Africa, making it appropriate and convenient for the FSCA to act.
- The matter has now been referred back to the Tribunal for reconsideration on the merits of the case.
In its reasoning, the court acknowledged that traditional common law rules, which required personal service of legal documents on a foreign party physically present in South Africa, are outdated in the era of globalised, digital financial markets.
“The judgment developed the common law to reflect today’s realities. It recognised that in a world of instant communication and cross-border transactions, insisting on physical presence would allow wrongdoers to escape accountability simply by staying offshore,” Maphumulo said.
By allowing jurisdiction to be established through electronic service, provided there is a close connection to South Africa, the court has closed a significant regulatory gap.
“This ensured that the FSCA can take decisive action when foreign actors deliberately target our markets and cause harm,” Maphumulo said.
The ruling has been noted as a major step in protecting the integrity and stability of South Africa’s financial system.
It expanded the FSCA’s reach, ensuring that foreign companies and individuals cannot simply hide behind geographic boundaries.
According to Maphumulo, this is about safeguarding the public and the economy from harmful conduct, no matter where it originates.
The judgment marked a significant moment in South African common law by incorporating legal principles that reflect the realities of digital markets.
This adaptation allows the country’s regulatory bodies to respond to the rapid changes in modern financial activities effectively.
“This is a progressive and necessary step. It strengthens our regulatory framework and aligns our approach with global best practice,” Maphumulo said.
“It also sends a clear message: if you aim to manipulate or disrupt South Africa’s financial markets, you will be held accountable.”
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