• The Financial Markets Review Committee, which coordinates South Africa's three high-level financial market regulators, has published draft recommendations to strengthen regulation.
  • One recommendation: a US-style bounty for whistleblowers in cases of mega fraud – which could run into hundreds of millions of rands.
  • Other recommendations include a "bad apples" register, to keep unfit people far away from some markets.

South African financial regulators may consider a plan to reward whistleblowers who help uncover "substantial misconduct" in the market – with what could turn out to be hundreds of millions of rands in cash if a US model is followed.

"It is recommended that the regulators consider implementing a programme that rewards whistleblowers for providing information about substantial misconduct in financial markets that leads to a successful enforcement action with monetary sanctions," reads a recommendation in the draft 2018 Financial Markets Review report published this week.

The report cites as example an American model, where the US Securities and Exchanges Commission (SEC) may pay 10% and 30% of money collected from wrongdoers to those who volunteer the information that leads to the recovery.

In March the SEC paid a combined $83 million to three whistleblowers, an average equivalent of around R430 million each at current exchange rates. Although it does not disclose details of incidents or payments, the SEC says it has paid $250 million in bounties since the start of the programme in 2011, while bringing in more than $1 billion in financial remedies as a result.

South African whistleblowers are protected against retaliation by employers under current legislation, but there is no formal system of rewards for either individual or companies that uncover malfeasance.

The Financial Markets Review is published by the Financial Markets Review Committee (FMRC), a body set up by the Reserve Bank, National Treasury, and Financial Sector Conduct Authority (FSCA) to coordinate improvements in regulations and law to strengthen wholesale financial markets. 

South Africa has not seen the kind of widespread misconduct in wholesale markets uncovered elsewhere in the world, the FMRC says in its draft report, but there is room for improvement – and international examples have helped focus the attention of regulators. 

Other recommendations in the report include that regulators set up a register of "fit and proper persons" – while also setting up a mechanism for finance houses to share information about employees "to stop bad apples rolling between firms."

This could be done by way of a central database of "information on the conduct of financial market professionals".

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