Background: Capitec Under Fire
On 30 January 2018, Viceroy Research Partnership LLC (Viceroy) and its associates released a report entitled Capitec: A wolf in sheep’s clothing. The publication sent shockwaves through the South African financial sector, triggering an immediate collapse in Capitec Bank’s share value. At its lowest point that day, the share price had tumbled by more than 20%, erasing over ZAR 25 billion from the bank’s market capitalisation.
FSCA Investigation and Penalty
The Financial Sector Conduct Authority (FSCA) launched an inquiry into the report, alleging that Viceroy and its partners had disseminated false and misleading information in contravention of section 81 of the Financial Markets Act 19 of 2012. Relying on section 167 of the Financial Sector Regulation Act 9 of 2017, the FSCA imposed an administrative fine of ZAR 50 million on the respondents.
Tribunal Challenge
Viceroy contested the penalty before the Financial Services Tribunal. On 15 November 2022, a majority of the Tribunal ruled in its favour, overturning the penalty. The Tribunal accepted that while the FSCA had authority to examine the conduct in question, it lacked jurisdiction over the foreign respondents themselves.
Common Law and Constitutional Development
The matter escalated to the High Court, where the FSCA sought review. The court seized the opportunity to consider how common law should adapt to the realities of a globalised, digital economy. Citing section 39(2) of the Constitution, which mandates development of the common law to advance the Bill of Rights, and section 173, which empowers courts to evolve the law in the interests of justice, the court acknowledged that strict territorial limitations were outdated.
Modern commerce, the court observed, is borderless: courts now hear cases online, and employment and communication often transcend geography. To hold otherwise would weaken regulators in their ability to police foreign actors intentionally targeting South Africa’s financial system.
The Court’s Reasoning
The High Court emphasised that insisting on traditional personal service rules ignores the digital nature of modern interaction. Rule 4A of the Uniform Rules of Court already recognises this by authorising service of documents via email and facsimile. Extending this logic, the court concluded that regulators must be able to rely on electronic service when enforcing penalties against foreign parties.
Viceroy’s actions illustrated the point: its report was widely circulated within South Africa, causing measurable financial harm to a key institution. To excuse liability merely because the perpetrators were outside South Africa’s borders would be contrary to the interests of justice.
A Landmark Declaration
The court issued a precedent-setting declaration, holding that the FSCA may impose administrative penalties on foreign persons (peregrini) under section 167 of the FSR Act where:
- Proper notice of enforcement proceedings has been given, including by electronic means; and
- The foreign party’s conduct has a sufficiently close connection to South Africa to justify the exercise of regulatory power.
Key Consequences
This judgment reshapes the regulatory framework by:
- Removing the need for physical presence in South Africa for enforcement action.
- Establishing electronic service as valid and enforceable.
- Introducing a “sufficient connection” test focused on the effect of conduct rather than location.
- Empowering regulators to pursue foreign entities whose actions impact South African markets.
Implications for International Business
The decision signals a significant shift in legal risk for global actors. A company cannot rely on its foreign domicile as a shield from South African oversight. Where conduct, such as the publication of financial reports, statements, or digital campaigns, has a direct impact on South Africa, regulators may now hold those responsible to account.
For international businesses, this means that regulatory exposure extends beyond physical borders. Conduct with material consequences for South African markets can attract scrutiny, penalties, and enforcement, regardless of where the entity is based.
