Debarment of Representatives – now and post FSRA

The current provisions in the FAIS Act, 2002 and the procedures that have been adopted and applied by FSPs, and to some extent by the FSB, regarding the debarment of representatives have led, in many instances, to serious injustices for many representatives.

Aggrieved representatives have no recourse against debarment by a FSP other than to apply to the High Court for a review of the debarment. That is often way beyond the financial means of many representatives who firmly believe that there were in fact no valid reasons for the debarment and who, often, believed and could show that the debarment was malicious.

S 14 of the Financial Advisory and Intermediary Services Act 2002 makes it compulsory for a FSP to ensure that any representative who no longer complies with the fit and proper requirements referred to in section 13 (2) (a) or has contravened or failed to comply with any provision of this Act in a material manner, is prohibited by such provider from rendering any new financial service. The representative’s name must be removed from the register of representatives and the FSP must inform the registrar in writing and provide the registrar with the reasons for the debarment in such format as the registrar may require.

The FSB has set a number of Guidelines for FSPs who have debarred a representative. That latest such guidelines include requirements that documentary evidence and information supporting the reasons for debarment be included in the notice to the Registrar including, but not limited to any notice to attend a disciplinary hearing, a copy of the service contract or mandate between FSP and debarred representative, a transcript or minutes and outcome of the disciplinary hearing and confirmation that the representative was given an opportunity to be heard.

There are no specific debarment procedures laid down in the Act, in the Regulations or in any Board Notice. The Registrar’s Guidelines are all that have been provided and remain just that – guidelines.

It would seem that, in practice, these Guidelines are sometimes not followed. Nevertheless, the FSB recorded the debarment and the former representative was left with no alternative but to seek relief in the High Court.

In one such matter that was heard in the High Court of South Africa (Eastern Cape Division Case No 629/2013) in June 2013, the Applicant, Francois Pienaar, challenged whether Nationwide Funeral Services CC (represented by Ms van Rooyen) had lawful reason to request and secure his debarment. Mr Pienaar alleged that NFS had not provided reasons as required in terms of S 14(3) of the Act nor had the FSP fulfilled its obligations as set out in the FSB’s own Guidelines. Mr Pienaar asked the Court to decide whether or not the Registrar had acted lawfully in effecting the debarment.

The Judge in this matter, Mageza AJ, summed up Mr Pienaar’s view that “there has been a lamentable failure by both respondents to comply with the law and directives provided . . .” The debarment was declared a nullity by the Court.

The fact that a debarment requires a High Court challenge and that there are conflicting views on the process and the nature of the responsibilities of the FSP, the Registrar and the representative, is confusing and undesirable. More particularly, the fact that the only recourse available to any representative who holds the view that he or she has been unjustly debarred, is an application to the High Court, often results in severe prejudice to such representative.

An aggrieved representative has no recourse to the Board of Appeal established by section 26 (1) of the Financial Services Board Act. This is because S 39 of the FAIS Act 2002 limits the right of appeal to any person who feels aggrieved by any decision by the Registrar or the Ombud only. A decision by a FSP is not appealable under the FAIS Act, 2002.

This is all set to change – and change radically.

Treasury submitted the Financial Sector Regulation Bill to Parliament for debate in late October this year. The bill is to be considered by Parliament’s standing committee on finance, which will invite public comments and submissions prior to the expected enactment of the bill later this year.

This bill, once signed into law, will significantly amend the current S 14 of the FAIS Act, 2002 which will be replaced by entirely new provisions.

These include provisions in terms of which the FSP will be required to ensure that the debarment process is lawful, reasonable and procedurally fair. Specific procedures are then set out in S 14(3).

In terms of the new S 14(3), before debarring a person, a FSP will be required to give adequate notice in writing to the person stating the FSP’s intention to debar the person, the grounds and reasons thereof and any terms attached to the debarment. The FSP must also provide the person with a copy of the FSP’s written policy and procedure governing the debarment process and must give the person a reasonable opportunity to make a submission in response.

The FSP will have to consider any response and may thereafter decide to debar or not to debar the person. Once the FSP has taken a decision to debar or not to debar, the FSP must immediately notify the person in writing of the decision, and must give the grounds and reasons for such decision.

Most importantly, the amended S 14 now provides for a right of appeal against such debarment. The FSP will be required to notify the person of his or her right of appeal to the internal appeal mechanism established by the Authority, and the right to a subsequent review of the decision of the Authority to the Tribunal.

The FSP will also be required to provide details of the period within which the internal appeal proceedings to the Authority, or review proceedings to the Tribunal, must be instituted together with any other formal requirements in respect of the proceedings for the internal appeal to the Authority or the review to the Tribunal.

In essence then, the representative may now appeal to the appeal tribunal against the debarment decision of the FSP who debarred him of her. This new appeal process will simplify and expedite a remedy at minimal cost to the representative as compared with the current remedies available.