Regular readers of our articles must think we are fixated on cases involving the debarment of representatives by FSPs. The fact of the matter is that debarment is an extremely important aspect of your obligations and rights under the FAIS Act and the Financial Sector Regulation Act, whether you are an FSP or a representative.
In a recent case where the Financial Services Tribunal (FST) was called upon to rule on whether the FSP had fulfilled its regulatory obligations, it extracted four sections of the FAIS Act to clarify the legal requirements.
Debarment is not optional
Section 14(1) of the FAIS Act provides that:
“An authorised financial services provider must debar a person from rendering financial services who is or was, as the case may be a representative of the financial services provider if the financial services provider is satisfied on the basis of available facts and information that the person does not meet, or no longer complies with, the requirements referred to in section 13(2)(a) of the FAIS Act, 2002 or have contravened or failed to comply with any provisions of this Act in a material manner.”
There are two important considerations here. First, the FSP MUST debar the non-compliant person, not MAY. Second, the words “fit and proper” encompass an array of clearly defined requirements:
- Personal character qualities of honesty and integrity;
- Good standing;
- Competence;
- Continuous professional development;
- Operational ability; and
- Financial soundness.
Failure to comply with contractual obligations, or reaching production targets, are not grounds for debarment and should be handled in a normal disciplinary hearing.
The prequel
“Before debarring a person, the FSP is required to
- give adequate notice in writing to the person stating its intention to debar the person, the grounds and reasons for the debarment, and any terms attached to the debarment, including, in relation to unconcluded business, any measures stipulated for the protection of the interests of clients;
- provide the person with a copy of the financial services provider’s return policy and procedure governing the debarment process; and
- give the person a reasonable opportunity to make a submission in response.”
My colleague, Mark Bechard, makes an interesting point in his article on two recent rulings:
“As Guidance Notice 1 of 2019 states, the purpose of the process envisaged in terms of section 14(3) of the FAIS Act is to afford a representative an opportunity to make submissions in response to the grounds and reasons that inform an FSP’s intention to debar him or her.
“It then goes on to state that an FSP is not prevented from considering the matter and taking a decision concerning the debarment of that person if the representative chooses not to use the opportunity to make submissions.
“The Guidance Notice also points out that section 14 does not require that an oral hearing is held. In other words, the debarment can be decided on the written submissions received by both parties.”
The process
Section 14(2)(a) and (b) of the FAIS Act states:
“Before a provider effects a debarment in terms of sub-section (1), the provider must ensure that the debarment process is lawful, reasonable and procedurally fair. If a provider is unable to locate a person in order to deliver a document or information under sub-section (3), after taking all reasonable steps to do so, including disseminating through electronic means where possible, delivering the document or information to the person’s last known email or physical business or residential address will be sufficient.”
In two recent instances, the applicants in the applications for reconsideration indicated that the email addresses or cellphone numbers that the FSP used were no longer valid, yet, when contacted by the tribunal via these facilities, they reacted to the requests.
The sequel
In terms of section 14(3)(a)(i) to (iii) of the FAIS Act, an FSP must:
“…immediately notify the person in writing of its decision, the person’s rights in terms of chapter 15 of the Financial Sector Regulation Act, and any formal requirement in respect of proceedings for the reconsideration of the decision by the tribunal.”
Regrettably, too many debarred representatives abuse this privilege, citing unreasonable grounds for reconsideration despite having been clearly guilty of transgressing serious allegations, including fraud. In my view, there should be an option for the tribunal, like a costs award in normal court matters, to fine the Stalingrad tacticians.
