Alleged retrenchments at key South African tech company

UK-based fintech giant FNZ is allegedly retrenching hundreds of employees at its South African business unit.

This could have a significant impact on a 23-year-old South African company and the local financial services industry as a whole.

The company serves a large share of South Africa’s financial services industry, used by top local asset managers such as Ninety One and Nedgroup Investments.

However, the South African business has reportedly been in decline for years, with two major clients – Sygnia and Momentum – having ended their contracts with the company in recent months.

This is according to a former FNZ employee who spoke to Daily Investor on the condition of anonymity.

FNZ’s South African business started with the acquisition of Silica in 2021. Silica was founded in 1999 by Ninety One, South Africa’s biggest private asset manager, when it was still known as Investec Asset Management.

What started as a project to develop a custom software solution for Investec Asset Management to administer its unit trusts quickly became a business in its own right, onboarding major clients like Stanlib, Sanlam, Old Mutual and Foord.

Silica’s strong growth and dominant market position drew the attention of Edinburgh-based FNZ, a tech company that provides a global, end-to-end wealth management platform to asset managers, banks and insurance companies.

FNZ has operations across the globe, serving 30 million end investors with over $2.2 trillion in assets on the platform. Some of its clients include Barclays, Lloyd’s Bank, Quilter, Santander, and Vanguard.

In May 2021, FNZ decided to expand its operations into South Africa, striking a deal with Ninety One to acquire 100% of Silica.

At the time, Silica serviced around 1.3 million active investor accounts and employed more than 400 people in South Africa.

“Silica’s technology and outsourcing services are used by some of the largest investment managers in Sub-Saharan Africa, and their rich experience in the South African investment industry helps drive continuous innovation to the benefit of clients and their investors,” FNZ said at the time of the acquisition.

“The acquisition provides Silica and its clients with an independent owner, solely dedicated to asset and wealth management infrastructure, with international scale.”

“Silica’s employees join a rapidly growing global platform business, with a long-term sustainable focus.”

However, according to the former FNZ employee Daily Investor spoke to, this focus did not materialise.

‘Proceed with caution’

According to the former employee, there was a near-immediate culture clash following the acquisition, which was never resolved.

This, he said, is one of the major reasons for the South African business’s struggles over the past six years.

Despite the business holding a dominant position in South Africa, the employee claimed its revenue paled in comparison to FNZ’s other global businesses, which earned their income in dollars and euros, which ensured the local unit was low on the company’s priority list.

He alleged that this led the parent company to transfer many of the South African business’ top employees to other units in other countries, leaving the local business with severely diminished capacity and weakened financial performance.

In addition, he claimed the company did not properly allocate sufficient resources to the South African business, leaving it understaffed and unable to meet certain commitments, further exacerbating the revenue mismatch between the local and global business units.

He said these challenges severely diminished the South African business’s financial and operational performance, leading to the loss of two major contracts with local financial powerhouses Sygnia and Momentum.

Around the time of Silica’s acquisition in 2021, the company signed contracts with Sygnia and Momentum to develop some backend software for their wealth management businesses.

However, these partnerships would not last, as both Sygnia and Momentum ended up terminating their contracts with FNZ after, according to the employee repeated delays and failures to meet expectations. 

Sygnia told Daily Investor that its partnership with FNZ was terminated after six years marked by “persistent misrepresentation regarding the services FNZ asserted it was capable of delivering”. 

“The repeated assurances provided by FNZ’s then CEO, Adrian Durham, bore little resemblance to the reality of sustained and material non-delivery,” the company said.

“Despite Sygnia’s considerable efforts to support FNZ, including materially reducing the original scope of services and accommodating repeated extensions to delivery timelines, FNZ consistently failed to fulfil its contractual commitments.” 

“Chronic shortages of appropriately skilled personnel, coupled with the continual reassignment of staff across projects, resulted in ongoing disruption and delay.” 

In addition, the company claimed FNZ fundamentally underestimated the complexity of operating across multiple regulatory jurisdictions. It claimed the company adopted an overly simplistic, one-size-fits-all approach that “proved wholly inadequate”.

“Our experience was profoundly disappointing and, in our view, raises serious concerns regarding FNZ’s capability, execution discipline and reliability as a service provider,” Sygnia said. 

“Any organisation contemplating a contractual relationship with FNZ should proceed with extreme caution and undertake thorough, independent due diligence.”

Momentum Wealth CEO Hymne Landman told Daily Investor that the decision to end their strategic partnership with FNZ was mutual.

She explained that Momentum Wealth had started to evolve towards a more modular partnership approach in its technology plans, driven by strong internal capabilities. 

“We took a considered decision to move away from our previous strategic approach of partnering with a single investment platform technology partner (FNZ) toward a more modular, proprietary technology model, partnering with several specialist providers,” Landman said.

“This gives us more flexibility and enables us to adapt our technology stack to evolving technology trends and client needs.”

Section 189 retrenchments

The former employee alleged that all of these challenges steadily built up, with the company now looking to dispose of the South African business. Acquisition talks are ongoing and expected to conclude later this year.

This potential acquisition, combined with the local business’s other challenges, has allegedly led to Section 189 retrenchments in the South African unit.

He claimed the unit currently employs about 600 people in South Africa, around half of which are now on the chopping block. He said some retrenchments have already started, with more on the way. 

Concerningly, he further explained that it is likely that, following the South African business’s sale, around 95% of its employees could be removed as the potential acquiring company seeks to automate the business.

“What I see happening is, we’re obviously doing the 189 processes now to make people redundant,” he told Daily Investor.

“I think the plan is to make redundancies this year as far as possible and simplify the business, so when the potential new owner actually signs that agreement to purchase the entity, they’re not getting 600 employees, they’re getting 300.”

“And then there would be a moratorium from the Competition Commission to say they can’t retrench in the next year or 18 months or so forth.”

“I think they’re simplifying the business now to make that more aligned with the potential new owner’s strategy using AI and simplifying everything and automating everything to a point where they really don’t need the 600 employees to perform the services.”

However, he said this would have dire consequences for not just the South African business and its employees, but also for the local wealth management industry as a whole.

“Long story short is, Silica services 62% of the South African financial services industry, meaning that if we go belly up tomorrow, we will have a direct economic impact on this industry,” he explained.

He urged South Africa’s financial services regulators to step in and prevent the company’s collapse.

Daily Investor reached out to FNZ, which declined to comment.