Ex-employees implicated in MyMo accounts scandal take debarments to the tribunal

Earlier this year, it was reported that by mid-February Standard Bank had dismissed 82 employees for their role in activating MyMo digital bank accounts without clients’ consent. At the time, a further eight employees were awaiting the conclusion of disciplinary processes.

The scandal, which first came to the bank’s attention in the fourth quarter of 2021, led to an investigation that took more than a year to conclude.

Standard Bank initially thought that up to 20 000 accounts might have been implicated. But it was subsequently found that fewer than 3 000 illegitimate accounts had been opened, or less than 0.1% of the bank’s MyMo account base of two million.

The employees illegitimately activated the MyMo accounts to meet their sales targets.

In February, the Financial Services Tribunal (FST) heard the reconsideration applications of four former Standard Bank employees who were debarred for irregularly activating MyMo accounts.

The tribunal consolidated the four separate reconsideration applications into one, saying the applicants had the same legal representative, made the same or similar submissions, and delivered a consolidated set of heads of argument.

As the FST’s decision explains, for a new MyMo account to count as a sale, the account had to be opened at a client’s request and activated by the client making a deposit. But, according to Standard Bank, some accounts were not activated by clients; instead, the applicants deposited their own money into the MyMo accounts. These accounts were then recorded as a sale and counted towards the employees’ sales target or performance rating.

Before the tribunal, three of the applicants admitted they activated the MyMo accounts with their own money. One of the applicants denied he was guilty of the conduct for which he was dismissed and debarred. He said the bank’s findings had been based on hearsay evidence.

But the FST said the evidence at the disciplinary hearing did not support the hearsay allegations. It therefore treated his reconsideration application in the same way as it did those of the other three.

Standard Bank said the irregular activation of the accounts was gross misconduct and an act of dishonesty. Such dishonesty did not meet the character qualities of honesty, integrity, and/or good standing because the applicants willingly participated in the irregular activity knowing it was wrong.

The applicants said they acted erroneously and without the intention to deceive the bank or its clients.

Did the FAIS Act apply to the debarments?

The applicants submitted that the FAIS Act did not apply to their debarment and conduct.

First, the applicants said they should not have been debarred in terms of section 14 of the FAIS Act, but in terms of Part 5 (sections 153 to 155) of the Financial Sector Regulation Act (FSRA).

Standard Bank said Part 5 of the FSRA governs debarments by a “responsible authority”, which it was not. As an authorised FSP in terms of the FAIS Act, Standard Bank was empowered to debar the applicants, who were its representatives, in terms of section 14.

The FST agreed with Standard Bank and dismissed the applicants’ submission that the FAIS Act did not apply to their debarment.

Were the applicants acting as financial advisers?

Second, the applicants asserted they were not acting as financial advisers when they deposited money to activate the accounts. They argued that because Standard Bank is authorised under the Banks Act, section 1(3)(b)(ii) of the FAIS Act excludes the bank and/or their conduct from the ambit of the FAIS Act.

Section 1(3)(b)(ii) states that “intermediary service” excludes an intermediary service rendered by a product supplier:

• Who is authorised under a particular law to conduct business as a financial institution; and
• Where the rendering of such service is regulated by or under such law.

Standard Bank contended that an intermediary service is one of two types of financial services contemplated in the FAIS Act; the other is the furnishing of financial advice.

That some of the bank’s activities may fall within the ambit of what section 1(3)(b)(ii) excludes as an intermediary service did not mean that the applicants were not representatives of the bank who were liable to being debarred in terms of section 14 of the FAIS Act, the bank said.

The FST again agreed that section 14 applied to the applicants’ debarments.

Employment vs FAIS issues

The applicants claimed they were unaware that they were breaking a rule, were acting in accordance with a common practice that the distribution manager knew of and condoned, and they were never told that such activations were an act of dishonesty or prohibited.

The FST said the issues raised by the applicants have no bearing on their debarment. Such issues would be relevant to an appeal or review of their disciplinary hearings, and this does not fall within the tribunal’s jurisdiction.

Procedural and substantive issues

The applicants also alleged that the debarment process had been unlawful, flawed and unfair, but the FST said the evidence did not support these contentions.

Standard Bank quoted extensively from the FAIS Act, the General Code of Conduct, and the Determination of Fit and Proper Requirements to support its contention that the applicants’ actions meant they no longer met the requirements of section 13(2)(a) of the FAIS Act. This section, among other things, obliges an FSP to ensure that its representatives are fit and proper.

The bank also cited a number of decisions by the FST to support its argument that the applicants’ conduct meant they did not meet the character qualities of “honesty” and “integrity”.

Standard Bank submitted that the “applicants’ impugned dishonest misconduct was prolonged, repeated, premeditated, and clearly done with a motivation to obtain their targets unduly and dishonestly”

It said their conduct displayed “a concerted effort” to act dishonestly, avoid accountability and gain an undue and dishonest reward, which went to the core of their duties and responsibilities as representatives and employees of the bank. “Accordingly, the applicants cannot be trusted to perform their duties with honesty and integrity.”

The tribunal found that the facts in the record supported the bank’s submissions.

The FST said there was no basis for it to interfere with Standard Bank’s decision to debar the applicants and dismissed their reconsideration applications.