Procedural defects, even in cases involving significant misconduct, cannot be overlooked, and the debarment process must adhere to a fair and lawful process, says the Financial Services Tribunal (FST).
Abdul Aziz Daniels applied for his debarment to be reconsidered on the grounds that Pradue Financial Services (Pty) Ltd did not comply with section 14(3) of the FAIS Act.
Section 14(3) mandates specific procedural requirements for debarment, including an obligation for the FSP to provide the individual with an opportunity to make representations before the debarment is finalised.
In August last year, the FSCA informed Pradue of concerns raised by four clients, who accused Daniels of making misrepresentations regarding the insurance policies he sold to them. Specifically, it was alleged that he had applied for insurance policies on behalf of these clients without obtaining their consent.
According to the Tribunal’s decision, Daniel admitted to misrepresenting himself and opening policies without the clients’ consent, at a disciplinary hearing in October. Following the hearing, Pradue issued Daniels with a final written warning.
In January this year, Old Mutual Forensics lodged a new complaint against Daniels, accusing him once again of opening policies on behalf of clients without their consent. Daniels resigned the same month.
In April, the FSCA informed Pradue of further complaints from Old Mutual. The Authority questioned why Daniels was allowed to continue as a representative despite these allegations. This prompted the FSP to initiate debarment proceedings.
In May, Pradue formally notified Daniels of the termination of his employment, referencing the complaint from Old Mutual lodged in January, and debarred him.
In his reconsideration application, Daniels did not challenge the substantive reasons for his debarment. He focused exclusively on the procedural failures that, in his view, rendered the debarment process flawed and unfair.
Daniels said he was not notified of Pradue’s intention to debar him, and he was not made aware of the specific allegations against him. The FSP did not provide reasons for the debarment decision, and he was not given the opportunity to make representations before the debarment decision was made.
Fair procedure must be followed
The Tribunal said the core issue was not Pradue’s decision to debar Daniels, but the procedural flaws in how that decision was reached.
Section 14(3)(a) of the FAIS Act mandates that representatives be provided with notice and an opportunity to respond before a debarment is finalised.
The Tribunal acknowledged that although the serious allegations against Daniels could undermine public trust and cause harm to clients, the procedural fairness required by the Act could not be overlooked.
Ethical standards and professionalism are crucial for individuals in the financial services sector, which underpins the need for regulatory measures such as debarment. Daniels’ alleged conduct raised serious concerns about his suitability to operate in the sector.
Nevertheless, the Tribunal emphasised that the debarment process must be conducted in a manner that is fair and lawful, in accordance with the provisions of the FAIS Act.
Why remittal is the appropriate remedy
The Tribunal also addressed the appropriate order to be made when a debarment decision is procedurally flawed.
The FST considered its powers under section 234(1) of the Financial Sector Regulation Act and referred to the principles established in the case of Thomas v AGM Mapsure Risk Management (2018), which highlights the Tribunal’s reasoning on how to handle the procedural defects without disregarding the principles of natural justice and the statutory requirements.
The Tribunal said that simply setting aside the flawed debarment decision without further action might seem like an appropriate response. However, as clarified in Thomas, this would restrict the ability to refer matters back for proper consideration, which cannot be the intention of the legislation.
Remitting the matter, on the other hand, allows the FSP to correct the procedural errors and re-evaluate the debarment decision, ensuring it follows the correct legal process.
The FST noted that the purpose of remitting is not to make a decision on the substance of the case but to ensure that procedural fairness is upheld.
The Tribunal said that dismissing the application outright or substituting its own decision would not address the underlying procedural deficiencies. It could set a dangerous precedent where procedural mistakes are overlooked if the evidence seems compelling.
The most appropriate course of action was to remit the matter to the respondent, with clear directions to follow the proper procedural steps outlined in section 14(3)(a) of the FAIS Act.
The Tribunal acknowledged the importance of adhering to the six-month timeframe for initiating debarment proceedings, but it found that the unique circumstances of this case justified departing from this strict application.
Remittal does not constitute starting the debarment process from scratch but allows for the rectification of procedural defects within the existing framework.
The Tribunal underscored that this approach is necessary to protect the public and ensure that debarment is done fairly. It ensures that the process complies with the procedural requirements of the FAIS Act and promotes a just and equitable outcome for all parties.
The FST set aside Daniels’ debarment and remitted the matter to Pradue for reconsideration.
