Is Insider Trading Laws in South African Effective?


The Financial Services Board (FSB) has its own powers when it comes to the prosecution of those found to be conducting in Insider Trading in South Africa illegally. 

Although every investor probably knows about insider trading, it’s very rare that you hear of someone being prosecuted for it. It seems to be an offence that’s both difficult to detect and hard to prove. 

This perception is however not entirely correct, the majority of the administrative penalties that have been imposed by the FSB since 1999 are for insider trading. By 2015 FSB have had a total of around 360 cases, and imposed about R100 million in penalties. 

And even recently cases such as Coal of Africa Chief Operations Officer, Michiel Jakobus Bronn being fined for insider trading that took place even after he was instructed by the company’s chief executive officer not to trade shares, according to a South African regulator. Have also brought into focus what’s still being done to curb market abuse by the FSB when it comes to insider trading laws in South Africa. 

Before the Insider Trading Act of 1998 came into force in early 1999, the insider trading offence fell under the Companies Act of 1973. This contained a criminal sanction only, requiring guilt to be proven beyond reasonable doubt. Under that legal framework, it was indeed very rare for anyone to be found guilty. However, the new dispensation is far more effective. 

With criminal sanctions you need to prove your case beyond reasonable doubt. But FSB have opted to pursue administrative sanctions where they require a lesser burden of proof, needing to prove the case on a balance of probabilities. 

Also if it’s warranted, it’s possible that cases of market abuse could be referred for criminal prosecution as they remain criminal offences. However, criminal prosecution of any offence is the business of the National Prosecuting Authority (NPA), not the FSB. The FSB could refer cases to the NPA, through an investigative file, for the NPA to prosecute. 


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