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Fairness in Debarment Procedures

In a recent (5 October 2018) matter heard before the Financial Services Tribunal, the applicant, Ms X, applied for a reconsideration of a decision taken by the respondent, Y (the FSP). The FSP had taken the decision to debar the applicant based on the recommendation of the chairperson who presided at the debarment hearing.

The application was premised, inter alia, on two important grounds, these being:

  • The procedure followed by the respondent was unlawful, unreasonable and procedurally unfair; and
  • The chairperson and the respondent erred in finding that the applicant had failed to comply with the honesty and integrity requirements as referred to in Section 13(2)(a) of the FAIS Act, 2002.

This article will deal with the first ground. The second ground will be discussed in the next edition of this newsletter.

What does legislation say about debarment?
The original S 14 of the FAIS Act was substituted by S. 290 read with Sch. 4 of the Financial Sector Regulation Act, 2017 (FSRA) with effect from 1 April 2018.

The repealed S 14 was notably vague on debarment procedures. The amended S 14(3) now provides for specific procedures that must be followed by the FSP before debarring any person.

The FSP must, inter alia, give adequate notice in writing to the person stating its intention to debar the person. The notice must include the grounds and reasons for the debarment. The person must be given a reasonable opportunity to make a submission in response to the grounds upon which the FSP intends debarring that person.

Procedure followed
The FSP issued a notice to the applicant on the 1st June 2018 (a Friday) and, in terms of that notice, called on the applicant to respond by the 6th June (the following Wednesday) – a mere 4 days. This can hardly be considered a reasonable opportunity to respond.

The essence of this part of the determination is that the S 14(3) notice from the FSP must set out all the grounds upon which the debarment will be based and the reasons for the debarment.

However, in this matter, it would seem that subsequent to the original notice issued in terms of S 14(3), the FSP made additional submissions that introduced further grounds and evidence in support of these grounds. The applicant was not afforded the opportunity to respond to these additional grounds or evidence.

The Tribunal’s finding and lessons learnt
The Tribunal, after some deliberation, was unequivocal in asserting that the applicant did not have an opportunity to respond to the allegations set out in the respondent’s submission.

Although the term “reasonable opportunity” is not defined, it may be worth considering the provisions contained in S 154 of the FSRA which deals with debarments by the Authority. This section provides that, before making a debarment order in respect of a natural person, the responsible authority must, inter alia, give a draft of the debarment order to the person, along with reasons for the proposed debarment and must invite the person to make submissions on the matter, and give the person a reasonable period to do so.

S 154(2) provides that the “reasonable period” referred to must be at least one month.

FSPs who intend debarring representatives will have to ensure that the provisions of S 14 – and in particular S 14(3) are closely observed and followed in such matters. This includes a genuinely fair and reasonable opportunity to make the required submissions. Some guidance, it is submitted, can be found in S 154(2) of the FSR Act, 2017.

Unless debarment procedures are fair, reasonable and lawful, decisions taken to debar persons can be, and will be, overturned on technical grounds following an application to the Tribunal to reconsider any such decision.
Click here to download the detailed Financial Services Tribunal case.

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