The investment management firm, which provides portfolio management and financial advisory services to individual and institutional clients, was found to have improper risk management, control, oversight and governance over one of its unit trust funds.
As a result, the Third Circle MET Target Return Fund lost around 66% of its value between 8 and 11 December 2015.
The company blamed “unforeseeable market movements” following the sacking of finance minister Nhlanhla Nene by former president Jacob Zuma on 9 December 2015, which it described as a black swan event.
But the FSCA dismissed this argument.
In addition, the watchdog discovered “that the extent of the fund’s exposure to derivatives was contrary to the prescripts of the relevant financial sector laws as well as the fund’s own investment policy statement and mandate”.
This led to the firm breaching exposure limits as the fund was predominantly exposed to derivatives and did not have the cover required under South African financial regulations.
Some of METCI’s statements regarding the fund were also found to be misleading.
“It stated that the fund was predominantly invested in cash and the money market, whereas the fund over a period was almost wholly invested in derivatives,” the FSCA said.
“This, the [FSCA] found, was misleading as the [minimum disclosure documents (MDDs)] did not disclose the nature of the fund as well as risks associated with the fund.”