Debarment process revisited

Debarment process revisited – Get it right the first time

Judging by how many debarments are overturned by the Tribunal, this appears to be a matter requiring a revisit.

On 6 June 2019, the FSCA published Guidance Notice 1 of 2019 to:

  • provide the rationale to be applied and process to be followed by FSPs when effecting debarments
  • highlight the salient factors that require consideration when FSPs effect debarments and
  • clarify the function of the Financial Sector Conduct Authority upon receipt of the notification of such debarments.

Obligation on FSPs to debar persons

According the Guidance note, a debarment must relate to –

  1. the non-compliance by a representative or a key individual of such representative with the fit and proper of the FAIS Act; or
  2. contravention or failure to comply by a representative or a key individual of such representative with a provision of the FAIS Act, in a material manner.

Section 14(3) of the FAIS Act sets out the requirements with which an FSP must comply when debarring a person. These requirements must be contained in an FSP’s policies and procedures governing its debarment process. In other words, you are obliged to have a documented debarment process which you must follow when effecting such an action.

Prior to the debarment hearing you should:

  1. Give adequate notice in writing
  2. Consider any response from the person involved
  3. Decide to debar, or not, inform the person in writing, advise them of their rights to request reasons for the decision and have the decision reconsidered by the Tribunal.

The Guidance Notice also provides clarity on the issue of what to do when you discover a transgression after the person had resigned. This has proven to be a contentious matter and needs to be revisited in the Guidance Notice should such a situation arise.

Considerations when contemplating debarment

It is required of FSPs to act reasonably and rationally. This means that the decision taken must make sense and be justifiable, given the information that is available. When an FSP considers a debarment, it must only take relevant factors into account. Failure to do so, or giving consideration to irrelevant factors, may render the debarment unlawful.

FSPs’ duties after debarment

When a debarment has been effected the FSP must notify the Authority within five days of the debarment and provide it with the grounds and reasons for the debarment within 15 days on the prescribed Notification of Debarment Form. All documentation relevant to the debarment, including a copy or transcript of the debarment hearing, must be attached.

The role of the Authority

The Authority does not review, approve or confirm a debarment of a representative. The administrative action is complete once the debarring FSP takes a decision.

On receipt of the Notification Form, the Authority:

  1. may consider the possible referral of the representative’s actions for criminal investigation or enforcement action as contemplated by section 167 of the FSR Act
  2. has access to the relevant information should it receive an application for reappointment of a debarred representative and
  3. can satisfy itself that due process was followed by the FSP and that the debarment complies with provisions of the FAIS Act. In the absence of this, possible regulatory action against the FSP may follow.

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