The intricacies and confusion around the debarment process were yet again highlighted in a recent case in the Appeal Court.
Background
A representative of a major life office resigned on 31 May 2012 and took up employment with another on 1 June 2012. On this same day, employees of the forensic department of his former employer called on his office and demanded the return of all client files.
On 12 June 2012, the ex-representative met with a forensic investigator and a compliance officer from his previous employer to discuss certain “irregularities” which emerged from their investigations. Later that same day, he was informed that the FSB would be notified that he “…did not comply with the requirements of the FAIS (Act) for continued appointment as a representative of the life office.”
This was duly done on 13 June 2012. The reason given was that he ‘does not comply with personal character qualities of honesty and integrity’.
After failing in his quest to have his debarment lifted, the representative launched an urgent application in the North Gauteng High Court in Pretoria, citing both the life office and the FSB as respondents. The FSB did not oppose the application.
On 18 September 2012, the court issued an interim order that the FSB reinstate the representative on its register, pending the finalization of review proceedings.
On 16 October 2012, the representative launched a review application to have the debarment and consequential steps set aside.
In response to the application, the life office stated the following:
The Applicant has failed to draw the vital distinction between what is contained in sections 14 and 14A of the FAIS Act.
In effect, the debarment by the Registrar of a person in terms of section 14A of the FAIS Act precludes such person from rendering financial services on behalf of any services provider whereas a debarment in terms of section 14(1) of the FAIS Act precludes the debarred representative only from representing the particular services provider who effects the debarment. (My underlining)
It went on to say that the debarment by the life office did not preclude the Applicant from rendering financial services on behalf of his new employer. That prohibition could only arise from a debarment by the Registrar as contemplated in section 14A of the FAIS Act read together with section 9(2) thereof.
The High Court found that the representative “…had not made out a case for the relief that he seeks against the life office” and accordingly dismissed his application with costs, including the costs occasioned by the urgent application.
The judge concurred with the view expressed by the Life Office that the representative was not prohibited from acting as a representative of another life office.
The FSB appealed successfully against this finding in view of the industry-wide consequences it would have for other representatives previously debarred in terms of s 14(1), who could use this judgment to justify employment by a different provider, despite being debarred.
The Appeal Court was quite abrupt in its finding on the issue:
The court below appears to have misinterpreted the legal effect of a debarment in terms of s 14(1) in holding that it precludes the representative from acting as such only in respect of the debarring FSP. The absurdity of such an approach is patent. The debarment of the representative by a FSP is evidence that it no longer regards the representative as having either the fitness, propriety or competency requirements. A representative who does not meet those requirements lacks the character qualities of honesty and integrity or lacks competence and thereby poses a risk to the investing public generally. Such a person ought not to be unleashed on an unsuspecting public and it must therefore follow that any representative debarred in terms of s 14(1), must perforce be debarred on an industry-wide basis from rendering financial services to the investing public.
It is of grave concern that both the High Court and a major life office failed to interpret the Act correctly. The many complaints from debarred representatives regarding the process followed by FSPs confirm a dire need for simplified guidelines on the matter.
