The Financial Sector Conduct Authority (FSCA) regularly warns the public against individuals 
impersonating legitimate financial services companies. It has even warned about “individuals impersonating the FSCA, Prudential Authority and the South African Revenue Service … including fraudulently using the logos” of these trusted authorities. No one and nothing is safe from fraudsters, it seems.
A good rule of thumb is to double-check everything and ask questions, even when you are considering a regulated investment.
Regulated investments are those that operate under South African law and, therefore are subject to various rules and regulations. The entity offering them typically needs a financial services provider (FSP) license from the Financial Sector Conduct Authority and may even need to be licensed with the Prudential Authority.
In South Africa regulated investments include listed shares, bonds, collective investment schemes, including exchange traded funds and unit trusts, retirement funds and life insurer’s investment policies.
Regulation includes a level of protection to investors by, for example, limiting risk, obliging certain disclosures, ensuring that entities are adequately capitalised and audited and ensuring investments are secured in your own name or held in custody for you.
These measures do not apply to unregulated investments. This does not mean all unregulated investments are illegal, the risks are more often than not higher and you need to do a lot more work to be sure your money is safe.
This means you should avoid investing unless you have a clear understanding of whether the investment will be held in your name, how returns or capital gains will be earned, what the risks are of losing what you invest, the risks of the investment not delivering the promised returns or of you being locked into the investment for longer than you want.
Even if an investment is regulated, you must check that you are dealing with the legitimate institution and not a fraudster impersonating that institution.
Financial services providers do use other provider’s licences, but check with the licence holder that this is indeed the case before you believe what you are told. The FSCA issues regular warnings about fraudulent claims about associations with license holders.
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INAPPROPRIATE You may also feel like you have been scammed when you actually haven’t after investing in a regulated investment. This can happen if you are investing in a product that is ill-suited to your investment goal or timeline, or where returns are swallowed by commissions and fees. It can potentially also be avoided by doing research or getting good advice on what you need and what investments are suitable. |
Dodgy schemes tend to be based on legitimate investments, which makes them look like the real thing. Even if a potential investment triggers no alarm bells, pause and do some research. Trustworthy investment providers will welcome questions about products they are selling, and a legitimate investment should be easy to validate.
It probably is. A promise of unusually high returns with little risk, or no risk at all, is likely a scam. There is no such thing as a guaranteed get-rich-quick investment scheme, not a legal one anyway.
If someone reaches out by email, mail, telephone, or on social media with an unsolicited investment offer, potentially one that you have “been selected for”, be suspicious. You should also be wary of pop-ups when browsing online.
Fraudsters will often use promises of wealth and lavish lifestyles to entice investors. They might also use suggestions of secrecy, telling you not to tell anyone about this exclusive opportunity. Legitimate investment professionals won’t ask you to keep secrets.
In the case of Boiler Room scams, salespeople use high-pressure tactics, urging investors to act quickly to invest in shares, forex trading or cryptocurrencies since this “once-in-a-lifetime opportunity” is about 
to expire, or there is space for only a few more investors.
The shares or other investment may be legitimate, but high risk, or it may be fraudulent.
Don’t be fooled by the use of jargon. An investment provider should be able to explain the product, its underlying assets, and how returns are generated in plain language.
Also, don’t fall for the suggestion that the scheme is simply too complicated for you to understand.
Be wary of a scheme where you are required to recruit new investors or members. A pyramid scheme is one where money from new recruits or members is distributed as payments to existing participants. A Ponzi scheme is a type of pyramid scheme made to look like an investment but there is no investment earning returns behind the scheme. New participants investments are used to pay older participants.
Modern day Ponzi schemes operate on social media platforms.
The scheme continues to work as long as the base of new recruits keeps growing, for example, you recruit three people and they each recruit three people who, in turn, recruit another three each, and so on. The scheme collapses when it can no longer find new investors or members to provide the payments.
The Consumer Protection Act specifically prohibits participation in or promotion of a pyramid scheme, which means any one who profits from such as scheme does so illegally and risks having to repay their gains.
Even if past performance doesn’t guarantee future returns, be wary of something that has no track record at all.
Ask questions if you can’t easily find the company’s Financial Services Provider (FSP) number. Investment companies that are licensed by the FSCA will display their FSP number on marketing material and on their website.
Don’t make a deposit into a bank account in the name of a private individual. A legitimate enterprise should have a business account with a reputable financial institution in the company name. In the case of advance-fee fraud, investors are tricked into paying a small upfront fee on the promise of a share of a much bigger amount later that the fee will help unlock.
Alarm bells should ring if you receive a company email from a free email service – such as Yahoo, Hotmail or even Gmail. Legitimate investment companies don’t process customer information via free email servers.
All fees and commissions should be disclosed to you, and not only because it is required by law. You should understand how much of your investment would go to the service providers.
Don’t believe others who tell you all checks have been done. Do them yourself.
The FSCA recommends the following online searches:
Authorised financial institution by license category: https://www.fsca.co.za/Regulated%20Entities/Pages/List-Regulated-Entities-Persons.aspx.
Or, for an institution that is an authorised FSP in terms of the FAIS Act: https://www.fsca.co.za/Fais/Search_FSP.htm
A basic Google search is good too, as well as a Google Maps search for their listed address. This will also potentially bring up similar searches by other concerned investors, and even expose a scam.
Ask for all information in writing, and never sign documents that have not been fully completed.
Keep detailed notes. Scammers rely on bewildering their victims. The notes will help you to keep track of what they tell you and, in the worst-case scenario, help you to make a comprehensive report to the authorities.
Shame is a tool that is often used by scammers. Don’t be shy about reporting that you have been scammed. Remember that you are the victim. Talking about it and reporting it will help others avoid the same loss and humiliation.
Reporting it as soon as possible to the regulator, the FSCA, and to the commercial crimes division of the police increases your chances of getting your money back.
If a financial adviser recommended the scam, ask them to make good for their bad advice. If they refuse, you can take your complaint to the FAIS Ombud and to the FSCA. Read more: Can I get redress for bad advice from the FAIS Ombud?
Talk to your friends and family about what has happened. The more we are all made aware the harder it is for the fraudsters to keep getting away with it.
