Debarment and TCF

The necessity for a process to ensure that those who fall foul of the fit and proper requirements are not allowed to practice was never in question. In particular, the bad apples need to be discarded.

Unfortunately, the application and execution of the debarment process should possibly be regarded as one of the failures of the FAIS Act.

The Good

The prescribed process, if followed to the letter, will ensure the desired outcome, provided all parties conform to the requirements. The FAIS Act clearly stipulates that the FSP must, within 15 days after removal of the representative’s name from the register, inform the Registrar in writing, and provide the Registrar with the reasons for the debarment “…in such format as the Registrar may require”.

The “Debarment Notice” actually calls for documentation to be included as proof that the correct disciplinary procedure was followed, including the reasons for debarment and disciplinary hearing documentation.

Importantly, it also asks for documentary proof that the representative was informed, and acknowledgment of receipt of such notification.

In July 2015, we published an article titled Feedback on debarment of representatives, published in the FSB’s FAIS Newsletter 17. In this document, the head of the Enforcement Department set out his views on the process. In an earlier newsletter, he also expanded on his department’s frustration with FSPs who abdicated their responsibilities under Section 14(1) to his department.

The Bad

The most common manifestations of people completely disregarding these requirements are found in enquiries to us from representatives who were basically shown the door without any disciplinary process followed, or malicious debarments because the rep resigned and joined another FSP. In many of these cases, they were debarred after they left, and were oblivious of the debarment until their new employer informed them that their names appear on the “blacklist”.

Most complained that they were never subjected to disciplinary procedures, thus no documentation could have been sent to the Regulator.

Under the current system, they have no recourse to the Regulator, and are obliged to approach courts of law, which few can afford.

In the High Court case between Francois Gideon Pienaar and the Registrar in July 2013, the court had to determine whether the FSP had “lawful reason to request and secure a debarment”, and whether the FSB had acted lawfully in effecting the debarment. The court found for the applicant, Pienaar, and the Registrar was obliged to lift his debarment, and bear the costs of the application.

This raises the question of what the FSB does with the documentation that it requests as part of the debarment process. Does it actually insist on it being submitted by the applying FSP? Surely this must play an important role in both debarring a person, and when considering a request for the debarment to be lifted?

The Ugly

It is not only representatives who complain about non-adherence to guidelines published by the Registrar.

The rationale for regulation of the financial services industry is protection and fair treatment of clients. The same can be said for employees in the industry. Failure in this regard should receive urgent attention.

The guidelines for reappointing debarred reps contain the following statement:

It is the duty of the provider to ensure that their representatives are fit and proper. The Registrar does not assess the fitness and propriety of representatives. If the Registrar is of the view that a representative is not fit and proper, the Registrar must (my emphasis) take action against the provider for not complying with section 13 (2) of the Act.

This places an obligation on the “applying” FSP to ensure that all is kosher in terms the new appointee to avoid regulatory action against it.

It also obliges the FSB to consider documentation in its possession, including those relating to disciplinary hearings to ensure that the public is protected against people not fit to deal with clients. It cannot abdicate its responsibility to the public by shifting the onus onto the FSP.

Going forward

The shortcomings of the current system have been clearly grasped, and the entire section is to be replaced in the new legislation. Importantly, there will now be a tribunal, similar to the current Appeal Board, for disgruntled parties to state their case.

The point is: Can we wait that long? Or rather, should we have waited this long before addressing obvious shortcomings in the Act?

Over the years, many other anomalies in the Act received attention to ensure fair outcomes for clients. Why not this process?

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