The Financial Services Tribunal (FST) has drawn attention to the requirement for FSPs to provide representatives with the reasons informing an intention to debar, or the debarment will not be procedurally fair.
Section 14(3)(a)(i) of the FAIS Act states that before an FSP debars a person, it must 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.
The representative needs to have the reasons or factual basis for the intention to debar to formulate a response.
The reconsideration application that came before the tribunal concerned a debarment on the grounds of lack of honesty, integrity, and good standing.
Old Mutual dismissed the representative, “KT”, in August 2022 after a disciplinary hearing found him guilty of misconduct. Old Mutual alleged that, between March 2021 and February 2022, KT issued a client with five policies without request and without the client’s genuine signature.
The financial services company issued the notice of intention to debar the following month, and KT was debarred on 30 September.
In January this year, KT lodged his reconsideration application, as well as an application for his debarment to be suspended.
In February, the deputy chairperson of the FST ruled that the debarment was suspended because the notice of intention to debar did not appear to have complied with section 14(3)(a)(i) of the FAIS Act.
Adequate notice
In its decision, the tribunal drew attention to section 14(3) of the FAIS Act, which sets out the requirements with which an FSP must comply when debarring a person, and what Guidance Notice 1 of 2019 states about the application of that section.
The Guidance Notice states that FSPs are required to give adequate notice to the person affected by the debarment process. Adequate notice should state: the intention of the FSP to debar the person concerned; the grounds and the reasons of the debarment; and any terms attached to the debarment.
The FST said it was particularly relevant to the present matter that the Guidance Notice states that grounds refer to, among other things, failure to comply with the provisions of the FAIS Act and reasons mean the facts that inform the violation.
Devoid of facts
The tribunal’s decision quoted as follows from Old Mutual’s notice of intention to debar:
The purpose of the hearing is to investigate the following allegation(s):
Section 2 of the General Code of Conduct to the Financial Advisory and Intermediary Act, in that you failed to at all times render financial service honestly, fairly, with due skill, care and diligence and in the interest of the client and the integrity of the financial services industry.
Part II (Personal Character Qualities of Honesty and Integrity) of the determination of Fit and Proper Requirements to the Financial Advisory and Intermediary Act in that you, as a question of actions mentioned in paragraph 1 above, did not conform to the honesty and integrity requirements.
The FST said the notice did not contain reasons or facts that informed the grounds for KT’s debarment.
“On perusal of the intention to debar, the applicant is left to guess on what factual allegations preferred against him. It is our view that the respondent’s notice of intention to debar, as it reads, would not enable the applicant to formulate a response. In other words, he was not placed in possession of information to enable him to make representation.”
It would be unfair to KT to turn a blind eye to the “glaring” absence of reasons (facts) upon which the debarment process was found, the FST said.
The tribunal found that Old Mutual’s notice of intention to debar KT did not comply with section 14(3)(a)(i) of the FAIS Act because it was devoid of facts upon which the debarment process was based. Therefore, the debarment process was unlawful, unfair and unprocedural.
At the same time, the FST said the serious allegations that emerged during the disciplinary inquiry needed to be dealt with urgently.
It advised Old Mutual to be “more observant of its debarment process”, particularly where a representative does not have legal expertise.
The tribunal set aside the debarment and referred the matter back to Old Mutual for further reconsideration.
