Investigations Under Section 136 of the Financial Sector Regulation Act (FSRA) – What South African Financial Institutions Need to Know

Why Section 136 Matters

The Financial Sector Regulation Act, 9 of 2017 (“FSRA”) is the cornerstone of South Africa’s Twin Peaks regulatory model. It establishes the Financial Sector Conduct Authority (“FSCA”) and the Prudential Authority (“PA”) as the two main regulators overseeing the financial sector.

Section 136 of the FSRA gives these regulators wide-ranging powers to investigate potential misconduct, breaches of financial sector laws or risks to the stability and integrity of the financial system.

For banks, insurers, asset managers and other financial service providers, receiving a Section 136 Notice signals the start of a formal and compulsory investigation process, one with serious compliance and reputational implications.

What Triggers a Section 136 Investigation?

The FSCA or PA may initiate a Section 136 investigation if they suspect:

• Non-compliance with any financial sector law

• Misconduct by a financial institution, key person, or representative

• Market abuse, insider trading, or other improper conduct

• Systemic risk or threats to financial stability

• Contraventions of licence conditions or conduct standards

Who Conducts the Investigation?

Under Section 136:

• The FSCA or PA can conduct the investigation themselves; or

• They can appoint an independent investigator with statutory powers to act on their behalf.

These investigators have significant authority, including the power to:

• Summon individuals to appear and answer questions under oath or affirmation

• Require the production of records, documents or other information

• Enter and inspect premises (with or without a warrant, depending on the circumstances)

Your Legal Duties During a Section 136 Investigation

If you receive a Section 136 notice, you must:

• Cooperate fully with investigators

• Produce any documents or records requested

• Attend interviews when summoned

• Avoid obstructing or delaying the investigation

Non-compliance can lead to:

• Criminal charges under the FSRA

• Administrative penalties

• Suspension or withdrawal of licences

Rights of Financial Institutions

Despite the FSCA’s broad powers, regulated entities still have important rights:

• Legal representation – You can have your attorney present during questioning

• Privilege protection – You may withhold legally privileged documents (e.g. attorney–client communications)

• Challenging scope – You can challenge overly broad or unlawful demands through legal processes

Possible Outcomes of a Section 136 Investigation

After completing the investigation, the FSCA or PA may:

• Take no further action if no contravention is found

• Issue enforcement notices or administrative penalties

• Refer matters for criminal prosecution

• Impose licence conditions, suspensions or withdrawals

Practical Steps if You Receive a Section 136 Notice

1. Contact legal counsel immediately – Early advice can shape your response strategy

2. Preserve all records – Avoid any deletion or alteration of potentially relevant material

3. Understand the scope – Carefully review the notice to see what the regulator is investigating

4. Prepare staff – Anyone who may be interviewed should be briefed on the process and their rights

5. Engage constructively – Demonstrating good faith may help limit regulatory escalation

How Barter McKellar Can Help

Our Financial Services Law team assists clients in:

• Assessing Section 136 notices and advising on immediate response steps

• Liaising with FSCA or PA investigators to manage the scope of requests

• Protecting legally privileged and commercially sensitive information

• Preparing clients and witnesses for interviews

• Defending against enforcement action following the investigation

Final Takeaway

A Section 136 FSRA investigation is a serious regulatory process that demands a strategic, informed and proactive response. Having experienced legal advisors on your side can mean the difference between a manageable inquiry and a damaging enforcement action.