The interpretation and reach of an FSP – Initiated debarment under FAIS

29 Sep 2015

The Supreme Court of Appeal (SCA) has clarified that if a representative of a financial services provider (FSP) is debarred in terms of section 14 of the Financial Advisory and Intermediary Services Act, 2002 (FAIS), that debarment operates on an industry-wide basis in relation to any FSP, and not only in relation to the FSP of whom that person was a representative at the time of the debarment. It also clarified an FSP’s procedural fairness obligations to a representative when it takes steps to debar that representative.

What was the case about?

Percy Barthram (Barthram) was an appointed representative of Discovery Life Ltd (Discovery), which was an authorised financial services provider (FSP).  Discovery removed him from their register of appointed representatives following his resignation, as required, but then also took steps in terms of section 14 of FAIS to debar him from rendering financial services to the public. Discovery’s argument was that he lacked the personal character qualities of honesty and integrity and so did not meet the prescribed fit and proper requirements under FAIS.  On receipt of the debarment notice from Discovery, the Financial Services Board (FSB) listed Barthram as a debarred representative on the FSB’s official website.

Bartram launched urgent review proceedings in court against the debarment.  Only Discovery opposed this application, on the narrow point that a debarment effected by a FSP under section 14 of FAIS operates only to debar the relevant representative from providing financial services for and on behalf of that particular FSP, while a debarment affected by the Registrar of FSPs under section 14A operates as an industry-wide debarment.  As such, Discovery argued, its debarment of Barthram did not impact his ability to act as a representative under the FSP licence of his new employer.

When the High Court agreed with Discovery’s arguments in this regard (so dismissing Barthram’s review application), the FSB entered the fray and was granted leave to appeal the matter to the Supreme Court of Appeal (SCA).   Barthram was also granted leave to appeal against the dismissal of his review application to the SCA.

The critical issue for the FSB was its argument that the High Court had incorrectly concluded that the effect of Discovery’s debarment of Barthram was to preclude Barthram from rendering financial services to the public on behalf of Discovery alone. Instead, the FSB argued, a proper construction of sections 13 and 14 of FAIS should have led the High Court to conclude that Barthram’s debarment served as an industry-wide debarment, precluding Barthram from rendering financial services as a representative, on behalf of any FSP.

What did the court decide?

In making its finding:

the SCA agreed with the FSB’s construction of the relevant provisions of FAIS, finding that it would be absurd to hold that such a debarment restricts only the provision of financial services under the licence of the FSP that effected the debarment; and

the SCA agreed that Discovery had acted unlawfully in debarring Barthram without properly observing the principles of procedural fairness, in particular that of audi alteram partem.  The SCA held that Discovery should have offered Barthram a reasonable opportunity within which to prepare his representations to Discovery, and should have given him access to the relevant documents or information to ensure that his right to make representations was “a real, and not an illusory one”.  Barthram’s appeal accordingly also succeeded.

Relevant issues for insurers

This judgment clarifies the interpretation and reach of an FSP-initiated debarment under FAIS.  It further emphasises the need for an FSP to ensure that the rules of procedural fairness are meaningfully observed when steps are taken to debar an appointed representative.

(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.)