The Cliffe Dekker Hofmeyr publication Finance and Banking Alert – 17 October 2016 carries an article titled, Debarment of Delinquent FAIS Representatives.
It provides a brief outline of what to do when a FSP intends to have a representative debarred in terms of FAIS as well as the proposed amendments to s14 of FAIS.
We are normally inundated with enquiries from aggrieved representatives after discussing this topic in our newsletters, which indicates that proper procedure is not always followed.
The reason for this is explained as follows in the CDH document:
There are no specific debarment procedures laid down in FAIS, the regulations or any board notice published by the Financial Services Board (FSB). There are only the Registrar’s guidelines on the debarment process which were published by the FSB on 5 November 2013. As a result, it is unclear what process needs to be followed by a FSP to have a representative legally and validly debarred.
The FSP does not have a discretion to decide whether to debar a representative as s14(1) makes it compulsory for FSPs to debar a representative when he or she has failed to comply with the fit and proper requirements or has failed to comply with any provision of FAIS in a material manner. Further, the FSP must remove the representative’s name from the register of representatives and, within 15 days of the removal, inform the Registrar in writing that it has done so. The FSP must also provide the Registrar with the reasons for the debarment in the format prescribed by the Registrar.
However, where the representative is in the employment of a FSP, the requirements of the labour Relations Act, No 65 of 1995 (LRA) may be taken into account along with the requirements in FAIS. The FSP, as employer, therefore has to follow the disciplinary hearing process prescribed by the LRA and the outcome of the disciplinary hearing may be used as a basis for the process under FAIS. However, a guilty outcome under the LRA does not automatically lead to a guilty outcome under FAIS. An independent assessment would have to be conducted to determine if the representative did in fact contravene the fit and proper requirements in FAIS.
The guidelines published by the FSB sets out the procedure to be followed by a FSP when exercising their powers in terms of s14(1):
Lack of authority and unlawful delegation
- The Registrar requires the FSP to show that it has the authority to debar a representative by virtue of an employment contract or mandate agreement which existed at the time of debarment, otherwise the FSP cannot effect a valid debarment.
- If the reason for the debarment existed but only came to the notice of the FSP at a later date, the process of debarment may still be utilised.
- The person who authorises the debarment must be the key individual of the FSP or any other person authorised by the FSP.
Before effecting a debarment, the FSP must inform the representative of the intention to debar and the grounds thereof and must give the representative an opportunity to make a submission in response thereto. This could form part of the disciplinary proceedings carried out under the LRA.
Failure to comply with s14(1) of FAIS
- Within 15 days of removal of the representative’s name from the register of representatives, the FSP must inform the Registrar in writing and complete the debarment form prescribed by the Registrar. Debarment would not be appropriate before due process has been followed, for example, if the representative has been suspended pending an investigation.
Rationality, legality and reasonableness
- A FSP must ensure that the debarment is rational and reasonable and must only take relevant factors into account when considering debarment. Failure to do so may render the debarment unlawful. Any action taken by a FSP against a representative must be justifiable given the information that is available to the person making the decision.
A representative who has been debarred by a FSP cannot lodge an appeal to the FSB board of appeal as only decisions taken by the Registrar can be reviewed by the FSB board of appeal. However, the decision to debar would constitute “administrative action’ in terms of the Promotion of Administrative Justice Act, No 3 of 2000 (PAJA) and the representative would have to institute action in court in order to have the decision to debar reviewed.
Proposed New Procedure
The amended s14 of FAIS will now provide for a right of appeal against such debarment. The FSP will be required to notify the person of their right of appeal to the internal appeal mechanism established by the Financial Sector Conduct Authority (FSCA), and the right to a subsequent review of the decision of the FSCA to the Financial Services Tribunal (Tribunal).
The FSP will also be required to provide details of the period within which the internal appeal proceedings to the FSCA, or review proceedings to the Tribunal, must be instituted together with any other formal requirements in respect of the proceedings.
Next Thursday we’ll look at the proposed amendments, as discussed in the Cliffe Dekker Hofmeyr article in more detail.
We suggest that you download and study the Debarment of Delinquent FAIS Representatives article, and keep a copy on file for future reference.
At the same time, you may want to review the FSB’s guidelines on reappointment of debarred representatives, which is another topic which most readers appear to lack knowledge of.