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Debarments still a Headache

Louis Wessels, FSB legal consultant, writes in the latest FSB Bulletin that the debarment of representatives, unlike those involving key individuals, remain a taxing problem for the Regulator. Readers may recall that we raised this issue on a number of occasions last year, and also made available the guidelines from the FSB to ensure procedural fairness.

Debarments replaced the old “S”-codings which were put in place to blacklist transgressors. It is interesting to note that, at the start of FAIS, there were some 66 000 representatives in the industry. This number has virtually doubled to 124 000. Wessels points out that the FSB simply does not have the “…regulatory capacity to supervise the market conduct…” of representatives, which is why self-regulation was decided on upfront.

The problems experienced by the Regulator stem mainly from complaints from debarred representatives of procedural unfairness in the termination of their services.

Mention is also made of a court judgment delivered in the Eastern Cape Division in which the FSB was actually ordered to restore the name of a debarred representative to the central register (the FSB’s application for leave to appeal this judgment, is still pending).

In the article, Wessels conveys the views of the FSB which are employed when approached to review debarments by FSPs, or joined in court applications brought against it.

“These views are respectfully expressed, mindful of the fact that in legal opinions presented to the FSB, as well as in applications to court, differing views were advanced.”

  1. FSPs must subject their elected representatives to the requirements of honesty and competency, and supervise their conduct on an ongoing basis, in a manner similar to what they are required to do. If a representative no longer complies, the FSP must embark on the debarment process.
  2. Debarment must be effected for the purpose that it was designed for – to prevent persons who are not fit and proper from rendering financial services – and not for ulterior motives such as self-interest or retaliation.
  3. It has yet to be decided conclusively that the Promotion of Administrative Justice Act (PAJA) (Act 3 of 2000) applies to this type of debarment. Yet the FSB believes that the process of debarment should likewise be fair and reasonable and afford an opportunity to the representative to be heard, e.g. by way of a properly conducted disciplinary inquiry.
  4. There is a glaring absence in the above provisions, of any authority, right of veto, revision or obligation afforded to or imposed on the registrar, either in the appointment or debarment of a representative. The Registrar will only know of the engagement or debarment of the representative when informed by the FSP in terms of the conditions of its licence.
  5. Although not specifically stated in section 14(1), the only sensible interpretation of the provision is that a debarment may be effected even after the severance of the contractual relationship between the parties, as long as the reason for the debarment occurred during the relationship and the FSP has initiated the debarment on becoming aware of such reason. This would prevent the situation of the representative pre-empting a debarment by resigning or avoiding disciplinary proceedings.
  6. A debarment is complete when the FSP has withdrawn the representative’s authority to act on its behalf and has removed the name of the representative from the FSP’s own register kept in terms of section 13(3). The central register, kept by the Registrar in terms of section 13(5), is thereupon updated on being advised of the debarment.
  7. Adjustment by the Registrar of the central register and publicising the debarment are neither stated nor intended to be administrative acts on the part of the Registrar, which require due process under PAJA. These actions have different objectives, none of which is aimed at enabling the registrar to review the debarment.

The outcome of the appeal hearing could have some interesting repercussions for the industry, and the FSB.

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