Resigning immediately after receiving a retention bonus is not sufficient grounds for debarment.
In a recent ruling, the Financial Services Tribunal (FST) determined that using an application for reconsideration of debarment – a serious sanction intended to protect the public from unfit representatives – to resolve an employment contractual dispute is a potential misuse of this regulatory tool.
In its ruling delivered on July 19, the Tribunal found that the debarment order issued against the representative, “NL”, was not justified under the FAIS Act and should be set aside.
“The grounds for debarment appear to be primarily related to issues arising from an employment contractual dispute. Thus, the respondent used the debarment proceedings to resolve an employment contractual dispute,” the Tribunal stated.
The facts of the matter
NL was employed by ASI Financial Services (Pty) Ltd from 2 January 2023 until her resignation on 30 August 2023. The resignation came immediately after NL received a retention bonus from ASI.
On 19 September 2023, ASI’s attorneys demanded NL repay the retention bonus, arguing that its payment was contingent on her continued employment.
A month later, on 3 November 2023, ASI notified NL of its intention to debar her under section 14(3) of the FAIS Act, citing her resignation immediately after receiving the bonus as evidence of a lack of honesty and integrity.
ASI’s debarment notice focused on two points: the expectation that NL’s retention bonus was tied to her continued employment, and her immediate resignation without the required one-month notice, which they argued breached professional conduct standards.
Despite ASI’s demands, NL not repay the bonus.
On 29 November 2023, ASI sent an email reiterating its demand for repayment and suggested that management would reconsider the debarment if NL made an immediate partial payment of at least R7 000.
ASI sent follow-up letters on 5 and 18 December.
“Of importance, the respondent reiterated its demand for repayment of the retention bonus and further offered the applicant an opportunity to resolve the matter by agreeing to repay it,” the Tribunal stated in the ruling.
Six months after NL’s (29 February), ASI decided to proceed with the debarment, citing the same reasons of dishonesty and lack of integrity. NL was notified of her debarment on 5 March. On 10 May, she applied for reconsideration of ASI’s decision and sought condonation for the late filing of her application.
The central issue
The Tribunal stated that issues in dispute central to this matter were whether NL’s conduct justified debarment under section 13(2)(a) of the FAIS Act.
“The Tribunal must determine if the debarment action aligns genuinely with the purpose of the debarment provisions in the FAIS Act or if the decision to debar the applicant pursues an ulterior motive. The determination of this core issue lies in interpreting the applicant’s actions.”
Legal principles at play
The Tribunal’s analysis focused on whether NL’s actions, particularly her immediate resignation and failure to repay the retention bonus, demonstrated a general unfitness to provide financial services with honesty and integrity.
In its ruling, the Tribunal stated that “debarment appears to be partially premised on the terms surrounding a financial incentive offered by the respondent upon continued employment and the applicant’s failure to repay the financial incentive”.
The Tribunal criticised this approach, noting that “the focus should be on whether the applicant’s actions demonstrate a general unfitness to provide financial services due to dishonesty or ethical lapses”.
“It appears from the record that the applicant’s sudden and immediate departure from employment and failure to repay the incentive bonus, while raising concerns for the respondent, does not directly constitute ‘rendering financial services’.”
Additionally, the Tribunal pointed out that ASI’s emails suggesting debarment might be reconsidered upon repayment of the bonus implied the debarment was used for purposes beyond a legitimate concern about fitness and properness under the FAIS Act.
ASI’s policy on debarment defines financial services as:
- furnishing advice; or
- rurnishing advice and rendering intermediary service; or
- rendering intermediary service.
The Tribunal stated that the conduct complained of did not fall within this definition, indicating that ASI did not comply with its own policy on debarment.
“The respondent’s concerns regarding the retention bonus and the applicant’s departure, while relevant to their contractual relationship, do not necessarily translate to a lack of fitness and properness under FAIS.”
The Tribunal also examined clause 5 of ASI’s remuneration policy, which specifically addresses retention bonus clawback. The existence of this policy highlighted that ASI possessed contractual remedies to address its dispute with NL.
The Tribunal was of the opinion that by pursuing debarment proceedings alongside these contractual remedies, ASI’s actions raise concerns about potentially misusing the FAIS Act’s debarment process for purposes other than safeguarding the integrity of the financial sector.
“In other words, the debarment seems to be used as a tactic to exert pressure in resolving a contractual dispute rather than a genuine reflection of the applicant’s fitness to act as a financial services representative.”
The FAIS Act mandates that debarment should occur promptly upon the discovery of a representative no longer meeting the “fit and proper” criteria. Here, however, ASI’s decision to debar the applicant came six months after the alleged misconduct.
“This extended delay raises questions about the respondent’s true motivations for debarment, potentially suggesting its use as leverage in resolving the employment dispute rather than a genuine concern about adherence to the FAIS Act,” the Tribunal stated.
In conclusion, the Tribunal determined that the reasons for NL’s debarment were unrelated to her provision of financial services and did not directly affect her ability to render those services with honesty and integrity.
Consequently, the Tribunal ruled in favour of NL’s reconsideration application, ordering that the debarment be set aside.
