Appeal Board Reduces Debarment Period

A recent case before the FSB Appeal Board saw the period of debarment halved which is an interesting deviation from previous views held by the Board on its powers to interfere in decisions by the Registrar.

In May last year we published an article in which we discussed this very matter: Appeal Board and powers of the Registrar to debar.

The Appeal Board makes it very clear that the FAIS Act entitles the Registrar to debar a contravening FSP and that the period of debarment is “…clearly a matter for the Registrar’s discretion.”

It does note that the Regulator must act judiciously in this regard, and that the appropriateness of the sanction will be determined by facts applicable to each case. The severity of the contravention will determine the period of debarment.

“When exercising this discretion, the Registrar must take into account, inter alia, public interest and the severity of the transgression, while also bearing in mind mitigating circumstances.”

“The Board will not interfere with such discretion lightly.”

In the Chipa Kingsley Baloyi appeal, published on 6 December 2017, the Appeal Board found that there were extenuating circumstances and reduced the debarment period from five to two and a half years.

Background of the case

In response to a request from the Financial Planning Institute (fpi), a duly authorised examination body, the FSB conducted an investigation which revealed that certain employees from the fpi assisted a number of candidates to unlawfully pass their regulatory examinations in an improper, fraudulent and dishonest manner by intercepting and manipulating their exam answer sheets in return for payment.

The appellant was debarred after having been found guilty of bribing an exam official on 26 May 2012 to manipulate his results by paying an amount of R3 000 directly into her personal account.

The Appellant appealed against the Registrar’s decision to withdraw his licence and debar him for a period of five years for failing to comply with the Fit and Proper requirements of the General Code of Conduct.

Findings of the Appeal Board

A precedent was set in the Mondisa Cindi decision, which also considered the discretionary powers of the Registrar and actually found grounds for reducing the period of debarment from 5 to 3 years. The Board found, in this case, that time considerations should have played a bigger role, and noted: “The primary consideration which remains is fairness to all.”

In the Baloyi case, the Board noted: “The severity of the transgression is a primary factor to consider. However, the mitigating and aggravating circumstances have to be weighed up as well. This Panel is also mindful not to interfere with the Registrar’s decision unless there is just reason to do so.”

“However, in exceptional cases, it may depart from the Registrar’s decision. The question whether a departure is justified must be considered with reference to the entire context of the case.”

The Board considered the following factors in reviewing the debarment period in the Baloyi case:

  • Whether the period of suspension will be sufficiently correct to avoid recurrence;
  • Whether the Appellant has shown remorse and
  • Whether his private life has been affected

“Having considered the facts before it, and the fairness principle, the Board found that the sanction of 5 years was harsh, and that a more appropriate sanction in light of the mitigating facts is 2.5 years. Such period of suspension would be sufficient to avoid a recurrence.”

This despite noting the following:

“He has been operating in an industry, and in all probability knowing that his qualifications were not genuine. Even if this Panel gives him the benefit of the doubt that he was misled initially (namely that he was advised that the payment was to ensure that his paper received the attention), the glaring improbabilities shall persist. For instance, by paying the amount into a personal bank account is irregular and should have raised concern. Moreover, his submission that he trusted that this arrangement was part and parcel of the FPI’s duties is ludicrous. This conduct was sheer negligence and unbecoming of a financial services provider in this industry.”

The Registrar, in response to mitigating circumstances put forward by the appellant, noted:

  • He had been operating in the industry since 2012 (over 5 years), knowing full well that his qualifications were fraudulent. Each time the Appellant rendered financial services to clients, he knew that he was not qualified to do so.
  • The Appellant placed different versions before the investigators, the Registrar and the Appeal Board. That in itself demonstrates that he was in collusion with the FPI officials.
  • The Registrar is duty bound to protect the public against persons who act with dishonesty. This is clearly an instance which justifies a debarment.

A question that arises is to what extent remorse, as mentioned above, played a role, given the second point raised by the Registrar above. Surely, one who is remorseful would not perpetuate the transgression?

Click here to download the applicable Appeal Board decision

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