The investor’s risk is not entirely absorbed by the FSP.
In this blog we deal with the case of Ernest Lehanie ta Ernest Venter Makelaars and FAIS Ombud and Another where the Appeals Tribunal found against the FAIS Ombud. Because this deals with a Property Syndication investment this is also important for other cases of a similar nature.
This matter relates to the appeal of a decision made by the FAIS Ombud. Briefly, the FSP breached the FAIS Act and Code of Conduct by not making a full disclosure regarding the high-risk investment product and all associated risks to the investor (who was a pensioner) for the investor to make an informed decision. Also, physical evidence of an analysis of the client’s financial needs and risk profiling seems is absent. Moreover, the prospectus given to the client contained contradictions relating to investor funds.
The FAIS Ombud’s decision:
The FSP breached its duty to act with skill, care and diligence by failing to ensure that the client invested in product that was right for his financial needs. This breach made the FSP liable to the client (investor). The FSP’s liability was based on its failure to provide a full disclosure to the investor and for not being able to reasonably foresee the investor’s loss.
The Financial Services Tribunal concluded as follows:
The lack of a full disclosure by the FSP about the investment was not sufficiently linked to the investor’s loss. That is, the FAIS Ombud erred in stating that the FSP should have reasonably foreseen the collapse of the Sharemax Property Syndication, thereby holding the FSP liable. The FSP’s failure to discharge its statutory duty, is not remotely linked to the investor’s loss. The investor’s risk is therefore, not entirely the FSP's fault. Further evidence is required in order to establish a link if indeed there is any. This resulted in the entire application being disposed of. Therefore, the matter was referred back to the Ombud for further reconsideration.
For more information on this Financial Services Tribunal decision click here
by: Horizon Compliance team