Viceroy report leads to groundbreaking legal precedent in cross-border accountability
The Pretoria High Court's landmark judgment in Financial Sector Conduct Authority v Financial Services Tribunal and Others fundamentally transforms how South African regulators can pursue foreign persons whose conduct impacts domestic financial markets.
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The Viceroy report
On 30 January 2018, Viceroy Research Partnership LLC (Viceroy) and its partners published a document titled Capitec: A wolf in sheep's clothing, which was widely distributed and publicised in South Africa. The immediate effect was staggering, with Capitec's share price dropping by more than 20% to an intraday low, wiping out more than R25bn of the company's market capitalisation.
The Financial Sector Conduct Authority (FSCA) investigated Viceroy and its partners for publishing false, misleading statements as envisaged in section 81 of the Financial Markets Act 19 of 2012 (FMA).
Consequently, the FSCA imposed an administrative penalty of R50m on Viceroy and the respondents in terms of section 167 of the Financial Sector Regulation Act 9 of 2017 (FSR Act).
On 15 November 2022, a majority of the Financial Services Tribunal upheld an application for reconsideration and set aside the administrative penalty. The Tribunal found that although the FSCA had jurisdiction over the respondents' conduct, it did not have jurisdiction over their persons.
Common law development
The High Court considered the FSCA's review application and recognised the urgent need to adapt legal principles to modern realities. The common law may be developed in terms of section 39(2) of the Constitution "to promote the spirit, purport and objects of the Bill of Rights", or in terms of section 173 if it is in the interests of justice to do so.
The High Court emphasised that modern society operates in a global world where the necessity for physical presence has diminished over time. Courts now hear matters virtually, and employees can reside anywhere in the world if their employment does not demand physical presence.
The FSCA argued that the common law hamstrings financial regulators in combating breaches of financial sector laws in the context of a global economy, preventing them from acting against foreign persons (peregrine), even when their conduct deliberately aims to cause substantial financial harm in South Africa.
The High Court agreed, noting that personal service has been overtaken by the rapidly developing digital world.
In introducing Rule 4A in the Uniform Rules of Court, the legislature acknowledged technical advances in the digital sphere. The rule now allows service of all documents subsequent to a summons or application by facsimile or electronic mail.
Importantly, the High Court found that the purpose and object of financial market regulation far outweigh the necessity to serve enforcement documents on a peregrinus personally to establish jurisdiction. Developing the common law in this regard will ensure effective regulation of global financial activity.
The High Court was particularly influenced by the case facts, noting that Viceroy's misinformation, widely distributed in South Africa, had a disastrous effect on one of the country's prominent financial institutions. Absolving them from liability merely because they would never be physically present in South Africa would not serve the interests of justice.
Significant changes
The High Court established a landmark legal precedent by declaring that:
the applicant may impose an administrative penalty in terms of section 167 of the Financial Sector Regulation Act 9 of 2017 on a peregrinus in circumstances where the requirements of section 167 are satisfied and where the applicant has jurisdiction over the person of the peregrinus on the basis that notice of the applicant’s intention to impose an administrative penalty was delivered to the peregrinus by any means (including electronic means) and the connection between the conduct of the peregrinus and South Africa is sufficiently close to make it appropriate and convenient for the regulatory power to be exercised.
This declaration fundamentally transforms the regulatory landscape by:
- eliminating the requirement for physical presence in South Africa for service;
- establishing electronic service as legally sufficient;
- creating a "sufficient connection" test based on conduct impact rather than physical presence; and
- enabling effective cross-border financial regulation.
A foreign entity conducting business activities that impact South Africa can no longer rely on its residence to shield it from regulatory liability.
Following this landmark judgment, South African authorities may now exercise jurisdiction over foreign persons where two key criteria are satisfied:
- proper notice of intended enforcement action has been served (including through electronic means); and
- a sufficiently proximate connection exists between the foreign person's conduct and South Africa to render the exercise of regulatory power both appropriate and convenient.
This development fundamentally alters the risk landscape for international businesses, establishing that physical presence within South African borders is no longer a prerequisite for regulatory accountability.
Foreign entities must now carefully consider the potential South African implications of their conduct, particularly where such activities may directly or substantially affect South African markets, institutions, or stakeholders.
About the author
Lenee Green, Partner and Mariam Ismail, Associate at Webber Wentzel