Nicola Mawson

After Steinhoff’s implosion in 2017 when audit firm Deloitte flagged accounting issues, the JSE tightened regulatory measures by implementing “innovative reforms to strengthen the South African financial markets”.

Because the Steinhoff group’s primary listing was on the Frankfurt Stock Exchange (FSE), that bourse’s regulations were applicable, said Andre Visser, the JSE’s issuer regulation director.

A PwC probe into wrongdoings at Steinhoff summarised how the shift in primary listing from the JSE to Frankfurt came about.

In the length report, which Business Report secured under a Promotion of Access to Information Act, the advisory company stated that Steinhoff International, registered in the Netherlands, started trading on the FSE on December 7, 2015. This followed a deal through which the Steinhoff group effectively bought out the South African division.

The company’s year-end was also changed from June to September.

Steinhoff’s secondary listing became effective on November 30 in the same year that it listed in Frankfurt.

PwC’s report noted that the JSE’s requirements included that executives should remain transparent and honest in all professional and business relationships and should not allow bias, conflict of interest or undue influence of others to override their professional judgement.

In addition to various other requirements, “executives must not engage in any conduct involving dishonesty, fraud, deceit or the commission of any act that may reflect adversely on the JSE or on the professional reputation, integrity, or competence,” PwC stated.

Visser explained that the bourse is only empowered to investigate breaches of its Requirements.

“Allegations in relation to commercial crime such a fraud must be referred to the South African Police Service and National Prosecuting Authority,” he said.

Even though Steinhoff only had a secondary listing on the JSE, the bourse took “robust public enforcement action against Steinhoff Holdings, the late Markus Jooste and Ben la Grange, as it specifically relates to breaches of the Requirements”.

Jooste has been cited as the kingpin behind the massive fraud, South Africa’s largest corporate scandal so far. He apparently killed himself a day before he was set to be arrested, and the Financial Sector Conduct Authority (FSCA) is seeking to secure the more than R400 million fine it imposed on him from his estate.

La Grange was Steinhoff’s chief financial officer and was sentenced to five years jail in October last year following his conviction of fraud involving more than R367m stemming from his manipulation of financial statements and failure to report fraudulent activities.

After investigations by the JSE, La Grange was fined R2m for the role he played in the Steinhoff At Work transactions and barred from holding office in a public company for 10 years. Jooste appealed his sanction.

Visser said that, while regulation, compliance and risk processes can be imposed endlessly by an exchange on a company and its board, these measures cannot address deliberate fraudulent intent or failure to remedy shortcomings in culture and values, especially if present at the highest levels in an organisation.

Yet, the JSE has solidified regulations following issuing a document for comment in 2018, which Visser said led to “innovative reforms to strengthen the South African financial markets”.

The South African Reserve Bank has not changed any foreign exchange control regulatory processes. A spokesperson stated that “the Financial Surveillance department does not have regulatory oversight over entities, like Steinhoff. Steinhoff and other entities registered under the Companies Act are regulated by the Companies and Intellectual Property Commission.”

The bank would not comment further as some matters are currently under litigation.

Meanwhile, the FSCA’s divisional executive of enforcement, Gerhard van Deventer, explained that it “prioritises learning from conduct and market failures in the financial sector, where relevant to our jurisdiction, to make regulatory improvements where possible”.

BUSINESS REPORT

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JSE tightened regulations after Steinhoff scandal exposes vulnerabilities in financial markets