South Africa’s Prudential Authority (PA) has fined energy captive Escap SOC R5 million (£217,762, US $272,489) for breaching Section 167(1) of the Financial Sector Regulation Act 9 of 2017 (FRSA).
The decision ruled that Escap SOC had contravened provisions of the Insurance Act and of Prudential Standards GOI 2 (Governance of Insurers) and GOI 3 (Risk Management and Internal Controls for Insurers).
Of the R5 million, R3 million was suspended on conditions.
Escap SOC is a wholly-owned subsidiary of Eskom SOC, South Africa’s primary energy provider. It was incorporated to be a captive short-term insurer for Eskom.
South Africa’s PA is the responsible authority for the Insurance Act, which promotes the safety of financial institutions, services and market infrastructures.
One of the key contraventions identified by the PA related to a decision by the board of directors to declare a dividend by Escap SOC of R600 million to the shareholder (Eskom SOC).
The Court decided that Eskom had serious liquidity problems and requested Escap SOC to invest R600 million in short-dated Eskom paper, which the market was not prepared to take up.
To have done so would — however — overexpose Escap SOC to Eskom beyond the 20 per cent limit for exposure to a single counterparty. It instead decided to declare and pay a dividend for that amount.
Escap SOC has applied for a reconsideration of this finding. Although, Escap SOC accepts that it had contravened a financial sector law in respect of the other findings which related to issues about new business take-on, the organisational structure, conflict of interest, lack of a succession plan and absence of procedures to identify non-compliance with Section 30 of the Insurance Act.
