Factors for consideration by financial services representatives when challenging a debarment decision

30 Aug 2023

Introduction

It is often said that South Africa’s financial sector is one of the most highly regulated in the world. This is certainly true if one has regard to the several ‘financial sector laws’ (see Schedule 1 of the Financial Sector Regulation Act) that regulate the financial sector. There are several statutory duties imposed on financial service providers (“FSPs”), financial services representatives (“representatives”) and key individuals. The legislative framework imposes a great emphasis on fair treatment of customers – there is a clear, concerted effort by the legislature to promote and ensure fair treatment of financial sector customers. This inevitably requires the FSPs to ensure that this vision of the legislature is achieved. Resultantly, the representatives and key individuals, as defined in the Financial Advisory and Intermediaries Services Act (“the FAIS Act”), are required to uphold the highest standards in so far as integrity, trustworthiness, etc. Whilst the law is clear on these requirements, the Financial Services Tribunal (“the Tribunal”) still finds itself being called upon to make determinations in debarment reconsideration applications. Given the frequency of such applications, it is incumbent upon all the role-players (the FSPs, key individuals and the representatives) to be wary of some critical factors that may play a decisive role in debarment reconsideration applications.

Factors for consideration

As it is always the case, the relevance of any information/factor in a matter is determined by the intricacies of that particular matter. Thus, whilst the factors discussed hereunder may be of relevance in many cases, they are by no means exhaustive, and they will not find application in every case. Firstly, a debarment reconsideration application may be predicated on non-compliance with the procedural requirements by an FSP, as required by the legislation. Procedural requirements are necessary in order to ensure fairness to a representative or a key individual. An example of an unfair process may include where a representative or key individual was not given an adequate notice in writing stipulating the grounds and reasons for the debarment. Where the FSP’s policy deals with a debarment process, such policy must be followed. It is also important that a representative or key individual is made aware of his or her appeal rights. Thus, an aggrieved representative or key individual can bring a reconsideration application on the grounds of non-compliance with procedural requirements.

In some cases, the reasonableness and the appropriateness of a debarment decision may deserve closer scrutiny. The Tribunal has, on several occasions, acknowledged that a debarment is “not a normal form of punishment”. It is extraordinary. In Simelane v Outsurance Insurance Company Ltd, the Tribunal held that, “the effect of the debarment is that the applicant is prohibited from rendering financial services to clients and can only be employed by a financial service provider if he has served out a period and is re-appointed by another service provider.” Therefore, some cases may require a thorough scrutiny of the facts and circumstances, in order to determine whether the debarment was indeed justified. Ordinarily, a debarment decision is followed by a dismissal. One must therefore accept that it is only in extremely rare circumstances where a dismissal may be justified but not a debarment decision.

A debarment flows from failure by a representative or key individual to adhere to and uphold fit and proper values, in terms of Section 14(1) of the FAIS Act. It then follows that the relevant conduct of a representative or key individual has to strictly fall within the parameters of “fitness and properness” of a person. It is not any wrongdoing in a workplace that justifies a debarment. In addition, such conduct must relate to “providing of financial services”. Therefore, in some cases and where justifiable, conduct may demonstrate lack of integrity, however, if it does not relate to the provision of financial services, a case may be made against a debarment decision.

Conclusion

Financial service representatives and key individuals have a right to challenge debarments. Where the facts and circumstances justify, there should be no hesitation by representatives and/or key individuals to approach the Tribunal for a reconsideration of a debarment decision. It is advisable to make use of legal experts when dealing with such matters given their technical nature. On the other hand, debarments are sometimes necessary to ensure that FSPs realise the vision and mission of the legislative framework.

Article sourced from Adams & Adams.

See also:

• Remain abreast of prescribed regulatory requirements with Sabinet Financial Regulatory Instruments
• Risks for financial service providers offering professional advice beyond their expertise
• Reaffirmation of the principle “ignorance of the law is no excuse”
• Crypto Assets as Regulated Financial Products

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)