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Disciplinary hearings and subsequent debarments – What are the rules

No doubt, most readers will heave a sigh of relief that this is not yet another Covid-19 related article.

The link between disciplinary and debarment hearings appears to be a major minefield for most FSPs, even those with huge legal and compliance resources. This is borne out by two recent Financial Services Tribunal rulings.

On 1 April 2018, the debarment process under the FAIS Act was amended by the Financial Sector Regulation Act 9 of 2017 (FSRA). Since then, 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.

Almost one year since the issuing of the guidelines, the latest published application for reconsideration of such a decision again highlights procedural irregularities and raises questions around substantive fairness.

Factual background

Ms M (The Applicant) joined the services of the Respondent on 30 October 2017, first on temporary basis that rolled over to a permanent contract after 15 weeks.

The allegations against the Applicant were that during the process of marketing and selling an insurance product telephonically to a client, she manipulated or forged the details of a banking account so that an account of another person, who was not the client to whom the insurance product was sold, was debited with the premiums.

The Respondent also accused the Applicant of failing to close the sale by reading back to the client the terms of the policy that had been agreed to. Reading the terms of the policy or closing the sale is a normal requirement where policies are being sold telephonically in order to ensure that both the seller and the client agreed on what had been sold and bought.

The discovery of the wrong account being debited with premiums led to a process which culminated in the debarment of the Applicant.

With reference to various communications and letters, the Applicant conveyed that her mistakes were not intentional, but as a result of not being knowledgeable about the system and process. According to the Respondent though, everyone, including the Applicant, received the required training.

The matter was investigated by the Respondent and, based on several facts, the Applicant was suspended from duty. The suspension was to last until the outcome of a disciplinary hearing. This was held on 5 September 2018 and the Applicant was found guilty of breach of contract and gross dishonesty. The Applicant was dismissed on 5 September 2018 and on 11 September 2018 the Applicant was served with a Notification of Intention to Debar.

Tribunal’s analysis

In this matter, the process for a valid debarment as prescribed in section 14(3) of the FAIS Act and expounded in the guidance notice referred to above was not followed. The whole process of debarment of the Applicant was based on the results of a disciplinary hearing only.

It is also evident that no further steps to comply with the peremptory requirements for lawfulness, reasonableness and procedural fairness were followed before the Applicant was debarred.

Furthermore, the chair of the Tribunal emphasised that a disciplinary hearing per se cannot take the place of a debarment process as prescribed in the FAIS Act and the guidance notice. “Merely drawing the attention of a person to a disciplinary hearing and doing nothing further to comply with the requirements for lawfulness, reasonableness and fairness as prescribed in the FAIS Act and expounded in the guidance notice will not make the ensuing debarment valid,” he remarks.

The matter was remitted to the Respondent for reconsideration.

Click here to download the Tribunal case.

In a similar case, concluded in May 2020, the Tribunal also found that a debarment was unreasonable, unlawful and procedurally flawed. Click here to read the case report.

The case notes analyse the rules that need to be followed by the FSP when debarment of an adviser is considered. In addition, it also highlights the process to be followed when selling insurance electronically, a service that will increase substantially during lockdown and forever after.

What is also interesting is that this specific case was heard electronically during the lockdown period.

We could not let you get away without mention of the pandemic, could we?

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