Debarment Process – Even institutions get it wrong sometimes

On 1 April 2018, the debarment process under the FAIS Act was amended by the Financial Sector Regulation Act 9 of 2017 (FSRA). In terms of section 14(3) of the FAIS Act, a FSP must, before debarring a person, take specific steps. Section 39 of the FAIS Act further stipulates that any person aggrieved by a decision of an FSP, including electing to debar a person in terms of section 14, may now also apply for the reconsideration of the decision to the Financial Services Tribunal.

Since April 2018, many debarment cases have been referred to the Tribunal. In some cases the outcome was that the debarments have been uplifted and in some it was remitted back to the FSP for reconsideration and to follow the prescribed debarment steps. In order to provide more guidance, the FSCA published Guidance Notice 1 of 2019 on 6 June 2019, to clarify the role of all parties in this process.

In the latest published application for reconsideration of such a decision, the debarment notification was issued post the amendment to the debarment process, but before the publication of Guidance Notice 1. It does not only showcase the non-conformance of the FSP to fair procedure, but also emphasises the timeline to consider when applying for a reconsideration.

Factual background

The applicant is Mr B, a former Financial Services Representative at an authorised FSP who is the Respondent in this matter.

It was alleged by the FSP that Mr B consulted with a client and sold a product for which he was not mandated. At the hearing the chairperson found that Mr B acted in a dishonest manner. Mr B however resigned before the finalisation of the disciplinary hearing. In view of his resignation, the Chairperson of the disciplinary hearing stated that Mr B’s conduct disqualifies him from the requirements of a fit and proper person to hold the position of a Financial Services Representative. As a result Mr B was notified of his debarment on the 8 November 2018.

Reconsideration application

Mr B filed his reconsideration application on 16 January 2019. The reconsideration application was thus out of time. According to Rule 9 of the Financial Services Tribunal Rules an application for reconsideration must be made:

(a) if the applicant requested reasons in terms of section 229 of the Act, within 30 days after the statement of reasons was given to the applicant; or
(b) in all other cases, within 60 days after the applicant was notified of the decision, or such longer period as may on good cause be allowed.

A clear reading of this rule therefore dictates that an affected person must file a reconsideration application within 60 days from the date on which that person became aware of the decision. If the affected person fails to adhere to this time frame, he/she must show good cause why the Tribunal should hear his/her application despite being filed outside the prescribed time frames. In this case Mr B should have filed his application by 7 January 2019. The reconsideration application was therefore filed 6 days late. As a result Mr B also applied for condonation of the late filing.

In the Tribunal case documentation it is stated that in dealing with a condonation application, one must consider the reasons for lateness, degree of lateness, prospects of success and prejudice to the other parties. The Tribunal was therefore of the view that the degree of lateness in this case was very minimal and it weighed in favour of granting the condonation.

Further analysis of the debarment showed that Mr B was not afforded an opportunity to be heard prior to the decision to debar him being taken. The debarment was therefore not effected in accordance with a fair procedure. Consequently, the debarment was set aside and remitted back to the Respondent to follow due process.

The outcome of this case once again highlights the proper process to be followed by FSPs, Representatives as well as the role of the Tribunal. Another salient fact is that, in many cases, the matter is remitted back to the FSP for further consideration and to follow fair process. This does not, however, preclude the Representative from being debarred in future.

It is therefore key to remember that a debarment relates to the non-compliance by a Representative or a Key individual with the Fit and Proper requirements of the FAIS Act, or a contravention or failure to comply with a provision of the FAIS Act, in a material manner.

Remember: It takes less time to do something right than to explain why you did it wrong.

Click here to download the Financial Services Tribunal case.

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