Since at least the beginning of this year, most of the applications to the Financial Services Tribunal (FST) to reconsider debarments concern representatives who were debarred for dishonesty relating to insurance policies.
The misconduct follows a familiar pattern: the representative is found to have issued a policy without the client’s consent or “doctored” the client’s details so that the client qualifies for cover. The financial services provider dismisses and subsequently debars the representative. The representative approaches the FST, claiming the FSP failed to follow due process, or pleading extenuating circumstances. Almost without exception, the tribunal upholds the debarment.
Two decisions handed down by the FST over the past week indicate that misunderstandings about debarments persist.
Debarment is a requirement
Telesure Investment Holdings dismissed and subsequently a representative based on four charges of dishonesty:
- Up-selling without acceptance from the client;
- Two charges of cancelling a client’s funeral policies but failing to inform the client that the policies had been cancelled; and
- Up-selling without noting on the policy that the client has diabetes and high blood pressure.
When informed of that a disciplinary hearing would be held to enquire into the charges, the rep immediately resigned. The FST’s decision indicates the rep may have hoped his resignation would be the end of the matter.
In the tribunal’s decisions in these matters, it is not uncommon for reps to resign when facing charges related to dishonesty, perhaps believing that resignation will “satisfy” the FSP and prevent it from proceeding to debarment.
But the tribunal has repeatedly drawn attention to section 14(1)(a) of the FAIS Act, which states that an FSP “must” debar a rep or a key individual if the FSP “is satisfied on the basis of available facts and information” that the person does not comply with the Fit and Proper requirements.
The section intentionally uses the word “must”, not “may”, which means that debarment is not optional. Once the FSP is “satisfied”, based on the “available facts and information”, that a person no longer meets the Fit and Proper Requirements, it must debar that person.
In his response to the notice of intention to debar, the rep submitted the following in his defence:
- He never intended to harm the clients or the company;
- His actions were not meant to be malicious;
- He had made a mistake; and
- He had not benefited personally from his actions.
But the FST did not accept these defences. It said there was no evidence to support his stance that he made an “honest mistake”. The applicant was aware, or should have been aware, that his conduct was wrong and could cause harm to the clients or the FSP.
The applicant only rectified his “honest mistakes” after they were brought to his attention by his manager.
The fact that he did not derive any financial benefit does not make him a fit and proper person as required by the FAIS Act, the tribunal said.
An “honest mistake” also indicates that he did not handle the clients’ affairs with due care and skill, the tribunal said.
The tribunal’s decision also drew attention to another “must”. Section 13(2)(a) of the Act stipulates that an FSP “must at all relevant times” be satisfied that its representatives and key individuals are, when rendering a financial service on behalf of the provider, competent to act and comply with the Fit and Proper requirements.
The financial services environment is highly regulated, and only persons who are Fit and Proper are allowed to render financial services to the investing public, the FST said.
Unauthorised risk activation
In this case, OUTsurance dismissed and debarred a representative who activated risk on a client’s policy without authorisation.
During the underwriting of a pet insurance policy, the client told the rep that the pet was born in January 2021. The insurer’s system cancelled the risk because of the pet’s date of birth. The rep changed the birth date to December 2020, which allowed the pet to qualify for cover.
OUTsurance said the rep’s motive was to boost his commission.
In response to the FSP’s notice of intention to debar, the rep said he had acted out of “desperation” because he was dealing with the death of his mother at the time.
In its decision, the tribunal traversed the requirements of sections 14(1) and 13(2)(a) of the FAIS Act.
It commented as follows on the rep’s conduct: “The applicant failed to follow the required procedures pertaining to activating risks for a client by not obtaining proper consent and authorisation for the activations he performed. The applicant’s conduct was deliberate, as he falsely created the impression that he had made sales when he had not. The applicant’s actions were self-serving, as he wanted to increase his earnings on the performance-based salary system of the respondent and to the detriment of his colleagues who competed with him. That was dishonest and could have also been to the client’s detriment.”
Long-term consequences
In both the Telesure case and the OUTsurance case, the reps asked not to be debarred because the sanction was too harsh: it would prevent them from working in the financial services industry.
The tribunal, once again, referred to the requirement of section 14(1). It added that debarment “is not a punishment in the ordinary sense of the word. It is the consequence of someone failing to comply with the Fit and Proper requirements.”
Moonstone frequently receives enquiries from people who have been debarred by FSPs for dishonesty asking how they can get off the list of debarred representatives. We refer them to Board Notice 82 of 2003. Essentially, after 12 months have lapsed, the person will have to find an FSP that is willing to appoint them as a representative. Of course, a record of being debarred for dishonesty may make that difficult, if not impossible.
As the tribunal stated in a decision earlier this month, “section 14(1)(a) of the FAIS Act is not forgiving”. The lesson is that representatives should think long and hard about the consequences before committing a dishonest or fraudulent act that could result in debarment.
The lesson is that representatives should think long and hard about the consequences before committing a dishonest or fraudulent act that could result in debarment.