Debarments: tribunal clears up ‘confusion’ about filing an application while legal proceedings are still pending

A decision by the Financial Services Tribunal (FST) last month should clear up any potential confusion over whether a reconsideration application can be brought by a representative who is still embroiled in litigation with the FSP who debarred him or her.

King Price dismissed and subsequently debarred the representative, “TV”, in August 2020 for no longer complying with the Fit and Proper Requirements. He filed his reconsideration application with the FST in September 2021. This clearly exceeded the deadlines in sub-section 230(2) of the Financial Sector Regulation Act (FSRA).

In his application to condone the late filing, TV said he was under the impression that Board Notice 82 of 2003 (Determination of Requirements for Reappointment of Debarred Representatives) prohibited him from bringing a reconsideration application while proceedings were pending against him in the Labour Court.

The Commission for Conciliation, Mediation and Arbitration set aside TV’s dismissal, and King Price took the award on review to the Labour Court in December 2020. Those proceedings were still pending.

TV relied on paragraphs 2(a) and (c) of Board Notice 82, which provide that a representative can bring an application for reappointment if:

  • Paragraph (a): At least 12 months since the debarment date have lapsed, unless the debarment was consequent on the applicant not having qualified as contemplated in section 13(2)(a) of the FAIS Act, and the applicant has within that period qualified as so contemplated.
  • Paragraph (c): All–

(i) complaints or legal proceedings (if any) submitted by clients to the applicant or the debarring provider, or the ombud or any court of law; or

(ii) other administrative or legal procedures or proceedings in terms of the Act or any other law,

arising out of any acts or omissions in which the applicant was directly or indirectly involved prior to the debarment date have been properly and lawfully resolved or concluded, as the case may be, and that the applicant has fully complied with any decision, determination or court order in connection therewith, given or issued in respect of the applicant.

King Price opposed condonation for late filing on the following grounds:

  • TV had legal representation;
  • TV was well versed in the provisions of the FAIS Act, the FSRA, and the powers of the tribunal;
  • Nothing in the FSRA suggests that pending litigation suspends the operation of section 230(2); and
  • The reasons for the delay were disingenuous.

The FST said it was evident, “based on an objective assessment of all the facts”, that the applicant showed sufficient cause for condonation.

Although TV was represented by attorneys, the tribunal said he should not be made to bear the burden for not being properly advised.

Condoning the late filing would not prejudice King Price, whereas debarment will severely prejudice TV, the FST said.

Misuse of debarment

As to the debarment itself, this was another case where an FSP debarred a representative for alleged misconduct that was not related to the rendering of financial services to clients.

King Price dismissed TV, following a disciplinary hearing, for “without justification and without informing the company, accepting money from his fellow employees for personal or for someone’s personal use”.

King Price’s reasons for debarring TV were the same: he had “unjustifiably” received money from employees without the company’s consent.

The FST set out the “relevant” facts as follows:

  • During the latter part of 2019, TV’s general manager asked for his assistance with arranging the general manager’s wedding.
  • The general manager informed TV that two other employees were also assisting with the wedding arrangements and would be paying funds into the applicant’s account. The money was to pay for a disc jockey and the honeymoon.
  • The two employees paid the funds into TV’s bank account. The general manager provided TV with the details of the bank accounts into which the funds for the DJ and honeymoon should be paid. TV effected the payments.
  • Upon becoming aware of this “arrangement”, King Price instituted disciplinary proceedings against TV.

King Price’s debarment case was that TV’s conduct, in being party to the aforesaid “arrangement”, and by failing to disclose it to the company, was dishonest.

However, counsel for King Price conceded before the FST that TV’s conduct did not equate to the “rendering of a financial service on behalf of the provider”. It therefore failed to meet what is required in section 13(2)(a) of the FAIS Act to trigger a section 14(1)(iii) debarment.

As the tribunal put it, King Price had conflated the findings of the disciplinary hearing in dismissing TV with what is required in terms of section 14 for debarment.

In what has become a familiar refrain in decisions relating to applications to reconsider debarments by FSPs, the FST stated: “The guidelines on debarments clearly stipulate that debarment should not be used by FSPs to satisfy contractual or other grievances against a representative, unrelated to fitness or competency requirements. Debarment proceedings should not be abused for ulterior purposes.”

The tribunal set aside TV’s debarment.

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