The Financial Services Tribunal (FST) has set aside the debarment of a former First National Bank (FNB) representative who was served with two “defective and invalid” notices of intention to debar, scuppering the lawfulness and fairness of the debarment procedure.
Counsel for FNB argued that “procedural mis-steps” did not invalidate the debarment, submitting that the Tribunal should accord more weight to the serious nature of the grounds on which the representative, “MM”, was debarred. This argument did not sway the FST’s panel.
The timeline of events, as recorded in the Tribunal’s decision, is material to the applicant’s case for reconsideration and the FST’s findings.
7 September 2021
FNB notified MM of his dismissal. At a disciplinary hearing, he was found to have accessed a customer’s bank account without the customer’s consent and divulged the customer’s financial information to a third party.
In terms of section 14(5) of the FAIS Act, FNB was obliged to undertake a debarment process within six months from the date that MM ceased to be its representative. In other words, the debarment process had to start no later than 7 March 2022.
17 December 2021
FNB issued the first notice of intention to debar, stating that MM no longer met the Fit and Proper Requirements. But the notice stated that these requirements were set out in section 12(12)(a) of the FAIS Act, which was clearly incorrect because this section does not exist.
31 December 2021
MM submitted his written response to FNB’s intention to debar him.
2 June 2022
FNB issued the second notice of intention to debar.
The Tribunal said this second notice could not have been issued in terms of section 14(5) of the FAIS Act because it was issued nine months after MM ceased to be FNB’s representative.
It said the second notice seems to have been an attempt to correct the first notice because it referred to MM’s failure to comply with section 13(2)(a) of the FAIS Act, not the non-existent section 12(12)(a).
FNB neither amended the first notice nor withdrew it.
15 June 2022
MM submitted his written response to FNB’s second intention notice.
15 March 2023
FNB notified MM that he had been debarred with effect from 15 March 2023.
MM brought his reconsideration application solely on procedural grounds; he did not challenge the merits of his debarment.
The main ground for reconsideration was that FNB commenced its debarment proceeding out of time, because it was initiated nine months after his dismissal, and he was debarred 18 months after his dismissal. If the debarment had occurred soon after his dismissal, by now he could have been entitled to apply for reappointment because his debarment would have run its course.
‘Undue and unreasonable delays’
The Tribunal described the procedure applied by FNB as “incredibly disquieting”.
It took FNB more than six months to correct the first intention notice, which “merely” required amending a reference to a wrong section or simply issuing a proper notice timeously.
A notice purporting to be a proper notice was issued nine months after the dismissal.
It further took FNB’s FAIS panel 14 months to be constituted and to sit on the debarment hearing or meeting after MM’s dismissal. And it took FNB 18 months after MM’s dismissal to issue a notice of debarment.
According to the Tribunal, when quizzed about these “undue and unreasonable delays”, counsel for FNB “simply brushed it aside by contending that the applicant has not raised any prejudice, as he did not suffer any, and the applicant only focused on the defectiveness of the second notice”.
After seeking further clarity, the Tribunal said counsel submitted that FNB’s FAIS panels were getting busier and busier, which resulted in a complicated bureaucratic process, making it difficult to constitute the panels within a short period.
According to the FST, counsel tried to reframe FNB’s case by arguing that it relied on the first notice of intention for the debarment. But the Tribunal said the facts showed otherwise. Even if the FST were to find merit in the submission, it would not assist FNB’s case because no debarment hearing or meeting occurred after the first notice was issued.
Tribunal’s problems with the first notice
Addressing the first notice of intention, the Tribunal said counsel for FNB submitted that section 14 of the FAIS Act does not require the citation of section 13(2)(a) of the Act in the notice of intention to debar, and, in any event, MM would have known the correct section.
The FST said this contention “belies and does not appreciate the true meaning” of section 14(3) of the Act and FNB’s debarment policy, which make it obligatory that the notice must set out “the grounds and the reasons for the debarment”.
Counsel for FNB highlighted that the merits were firmly stacked against MM because he was “complicit in the egregious act of misconduct and this could be established explicitly from the complainant’s complaint”. He submitted that the Tribunal should regard the defectiveness – what he referred to as a “procedural mis-step” – of the first intention notice as less serious than the breach committed by MM.
The Tribunal disagreed, saying the breach might well be serious, “but it is also a well-known principle that merit can hang on the altar of procedural unfairness”.
Furthermore, based on the provisions of FAIS Act, it is clear the intention of the legislature was to ensure that sufficient protections are provided to both FSPs and representatives, to achieve a fair and reasonable outcome from the process.
The question might be asked whether the first defective intention notice interrupted the running of the period contemplated in section 14(5) of the FAIS Act.
The Tribunal said the only way the first notice could have interrupted the period was if MM had acknowledged and admitted that his conduct was susceptible to debarment. But MM’s submission made on 31 December 2021 contained no such admission.
It would therefore be anomalous to allow the issuing of the defective notice to commence a debarment process, because this would not be legally tenable, the FST said.
Second notice was served out of time
The second intention notice was served after the prescriptive period of six months had ended from the date MM ceased to be employed by FNB. Therefore, it did not conform to section 14(5) of the FAIS Act and FNB’s debarment policy, the FST said.
The Tribunal said it could reasonably be inferred that FNB abandoned the first intention to debar until it issued the second notice of intention to debar on 2 June 2022. In support of this inference, it quoted as follows from the debarment notice of 15 March 2023: “With reference to the notice of intention to debar dated 2 June 2022, this letter serves to inform you that the FAIS panel considered the matter, and a decision was taken to proceed with your debarment…”
Counsel for FNB submitted the second defective intention notice should be disregarded, but the Tribunal said the facts showed the bank did rely on that notice as the notice that commenced the debarment process.
Although FNB relied on the second intention notice, the FAIS panel failed to consider MM’s submissions made on 22 June 2022 in response to this notice. In the notice of debarment, FNB informed MM that it considered his submissions that were received on 31 December 2021, which were made long before the date on which the bank issued the second intention notice.
In the result, the Tribunal found that both intention notices were defective and invalid, scuppering the lawfulness, fairness, and reasonableness of the debarment procedure.
It said no purpose will be served by remitting the matter to FNB and set aside MM’s debarment.
