FSCA must set a time limit on debarments, says tribunal

The FSCA cannot debar someone indefinitely – the FAIS Act requires a time limit, the Financial Services Tribunal (FST) said when it set aside this aspect of a debarment order and told the Authority to reconsider it.

According to the FST, the FSCA debarred the FSP, “EN”, because he allowed a debarred broker, “JV”, to render advisory and intermediary services, thereby assisting JV to breach his debarment order.

In this regard, the tribunal referred to sub-section 153(4) of the Financial Sector Regulation Act:

(a) A natural person who is subject to a debarment order may not engage in conduct that, directly or indirectly, contravenes the debarment order.

(b) Without limiting paragraph (a), a natural person who is subject to a debarment order contravenes that paragraph if the natural person enters into an arrangement with another person to engage in the conduct that directly or indirectly contravenes a debarment order on behalf of, or in accordance with the directions, instructions or wishes of, the natural person who is subject to the debarment order.

The FSP also signed as the intermediary on policy applications, declaring he had advised the clients, whereas this was not the case.

Sanlam Life reported the FSP’s conduct to the FSCA.

The FST said Sanlam had been incorrectly joined to the reconsideration application.

“It is not and cannot be a party to these proceedings, which concern the correctness of the decision of the FSCA.”

According to the FST, the FSP had different versions of when he became aware of JV’s debarment relative to the contract they entered.

The tribunal was also not impressed that the FSP, on the one hand, admitted wrongdoing that justified at least a suspension, and, on the other hand, denied any wrongdoing. It said this “inherently dishonest”.

More than ‘a referral’

The FSP’s “ultimate defence” was that JV merely referred the clients to him, and that he provided the advisory services.

“[The FSP] does not disclose on what basis the referral took place and what referral involved, probably because he could not disclose the terms of the agreement with [JV] to which reference was made. His present version confirms (whilst denying) that during this period he allowed [JV] to act as an intermediary on his behalf, which amounts to more than a mere referral.”

Here, the FST referred to the definition of “intermediary service” in section 1 of the FAIS Act: any act other than the furnishing of advice, performed by a person for or on behalf of a client or product supplier the result of which is that a client may enter into, offers to enter into or enters into any transaction in respect of a financial product with a product supplier (FST’s emphasis).

The tribunal dismissed the reconsideration application save for one aspect.

In the last leg of its four-point debarment order, the FSCA stated, “the licensee is also debarred from applying for a new licence”.

The tribunal said sub-section 9(6) of the FAIS Act does not allow such an unqualified order.

Paragraph (a) of this sub-section states: “A person whose licence has been withdrawn under this section is debarred for a period specified by the registrar from applying for a new licence.”

The tribunal therefore set aside the order debarring the FSP from applying again for a licence for an indefinite period and referred this issue to the FSCA for reconsideration.