Allowing someone without an FSP licence to earn a living by conducting business under your FSP licence might seem like doing a good turn. But neither the FSCA nor the Financial Services Tribunal (FST) sees it that way, and it will result in your losing your licence, too.
In the case that came before the FST, the applicant (“NB”), who was the owner and sole director of an insurance brokerage, rendered advisory and intermediary services on behalf of Sanlam Life.
NB’s problems started in August 2021, when Sanlam became aware that he was submitting applications for long-term insurance products where the clients signed incomplete documents and where certain particulars were completed at a later stage. More importantly, Sanlam was also made aware that although NB declared that he rendered the advisory and intermediary services to the clients, it was in fact a “Mr J” who provided those services under NB’s Sanlam code.
NB told Sanlam’s forensic investigation that Mr J approached him in August 2020 and told him that his licence was temporarily suspended. Mr J asked NB to allow him to operate under his Sanlam code. NB allowed Mr J to advise clients in his absence and submit and complete documents. NB signed the documents when required to do so.
All the commission (R17 115) was given to Mr J.
NB admitted that he was negligent and regretted his error in judgment.
Sanlam’s investigation found that Mr J also had a broker’s contract with Sanlam. However, it was terminated after the FSCA withdrew his licence in February 2020. Mr J was also debarred by the FSCA in October 2019.
The upshot of Sanlam’s investigation was the FSCA notifying NB in February 2022 that it intended to withdraw his licence. Failing to comply with the fit and proper requirements and the character qualities of honesty and integrity (section 8A of the FAIS Act read with section 8(1) of Board Notice 194 of 2017) was not the only reason. He had also failed to submit annual financial statements, as required by section 19(1) and (2) of the FAIS Act.
A different version
NB’s response to the FSCA contradicted what he told Sanlam in August 2021. NB said he rendered the financial services to the clients, not Mr J. As proof, he annexed letters from the clients stating that Mr J accompanied NB and introduced him to the clients, and NB provided the advice. He said the commission paid to Mr J was a “spotter’s fee”.
NB did not have an explanation for failing to submit financial statements for 2019.
The FSCA withdrew NB’s licence in June. Apart from the missing financial statements, it found that telephone recordings with the clients showed that they did not know NB and they obtained their policies from Mr J.
According to the FST, NB’s reconsideration application did not provide the grounds for reconsideration. However, in heads of argument, he made various claims, including:
- There was no factual basis for the withdrawal of his licence, which amounted to an unfair practice; and
- The letters from the clients proved that he was not dishonest.
Once again, there was no explanation for not submitting financial statements.
The FST said NB had been afforded several opportunities to provide the financial statements and to make submissions as to why his non-compliance with section 19 of the FAIS Act should not result in the withdrawal of his licence. Non-compliance with this section alone entitled the FSCA to withdraw his licence.
Something fishy about those letters
Turning to the issue of dishonesty, the FST noted the discrepancy between NB’s responses to Sanlam and to the FSCA.
In a further twist, NB also claimed that he did not know that Mr J was debarred and assumed that his licence was suspended because of unpaid levies.
The FST said even if it were assumed this allegation was true, NB, as a licensed FSP, had a duty to ascertain the validity of Mr J’s licence before allowing him to render advisory and intermediary services under his FSP licence and Sanlam code. Moreover, regardless of the reasons Mr J’s licence was suspended, NB should not have allowed a debarred FSP to operate under his licence.
As to the letters from clients purporting to confirm that NB rendered the advisory and intermediary services, these were not attested to under oath. When the tribunal asked NB whether he assisted the clients in preparing the letters or whether they were prepared independently by the clients, he claimed the latter.
The use of indistinguishable and similar language and phrases in all the letters suggested otherwise, the FST said.
“Dishonesty entails a lack of integrity or straightforwardness and, in particular, a willingness to lie,” the FST said.
The evidence showed that NB compromised his honesty and integrity. He permitted a debarred FSP whose licence had been suspended to operate under his FSP licence. He was dishonest in his dealings with the FSCA, as well as with his clients, the tribunal found.
“The dishonesty in question is of a sufficiently serious nature to impugn the honesty and integrity of the applicant.”
The FST dismissed the reconsideration application.
