The Financial Sector Conduct Authority (FSCA) has taken decisive action against African Bank Limited (African Bank) by imposing an administrative penalty of R700,000 for misleading advertising. This penalty is a result of African Bank’s contravention of Conduct Standard 3 of 2020 (Banks), which aims to ensure that financial institutions prioritise the fair treatment of customers when offering financial products and services.
Although the penalty was issued in relation to a bank, the content is equally relevant for Financial Services Providers (FSPs), who can take away their own learnings from the findings, because the provisions of the Conduct Standard (Banks) share significant similarities with the FAIS General Code of Conduct advertising section. This alignment ensures that financial institutions across different sectors adhere to consistent standards when communicating with and advertising to customers.
The FSCA’s investigation focused on African Bank’s #KeFestive social media campaign, which was launched in December 2023. The campaign featured a well-known public figure and encouraged consumers to take out personal loans with the phrase “It’s not a skoloto chomi! Ke investment.” The FSCA found this statement to be factually incorrect and misleading, as it misrepresented the nature of the loan product, implying that it was an investment rather than a credit facility.
By failing to provide clear and accurate information about the nature of the product, African Bank contravened several sections of the Conduct Standard (Banks):
- Section 6(1): Requires that financial products and services be advertised in a way that is clear, fair, and not misleading.
- Section 6(3)(a): Mandates that advertising by the bank must be factually correct.
- Section 6(3)(b): Prohibits any statement, promise, or forecast that is fraudulent, untrue, or misleading.
Additionally, the FSCA identified deficiencies in African Bank’s governance and oversight processes related to the review and approval of the advertisement. This was a violation of Section 6(9) of the Conduct Standard, which requires banks to have processes and procedures for the approval of advertisements by a person of appropriate seniority and expertise.
In terms of Section 14 of the FAIS General Code of Conduct, FSPs have similar responsibilities relating to advertising:
- Section 14(2) requires that FSPs must have documented processes and procedures for the approval of advertisements by a key person, or a person of appropriate seniority to whom approval was delegated.
- Section 14(3)(a) requires that advertisements be factually correct, balanced in the presentation of information, and not misleading.
The penalty serves as a reminder to all financial institutions about the importance of providing clear and accurate information to customers regarding the nature of financial products and services. Misleading advertising can lead to customers being misinformed and mislead, selecting unsuitable products, resulting in financial losses or other negative outcomes. All financial institutions are required to have robust internal governance and approval processes to ensure compliance with all requirements that are applicable to advertising.
From the outcome of the matter and penalty issues, it is clear that the FSCA will continue to take firm regulatory action against financial institutions that do not prioritise the fair treatment of customers which is critical to maintain trust and confidence in the integrity of the financial system. FSPs should consider the learnings and consider how non-compliance can have serious financial and reputational impacts.