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FSP -Contractual-Obligations

FSP Contractual Obligations

Employers will have to ensure that they have all their ducks in a row once the Financial Sector Regulation Bill is passed. There are two aspects, in particular, where the new legislation will drastically change the way in which some currently conduct themselves.

Debarments

We receive more responses from readers regarding debarments than most other topics covered in our newsletters. Inevitably, it comes from representatives who feel aggrieved about the way their services were terminated.

The FSB also expressed its dismay at the failure of FSPs to follow due process, leaving the Regulator to do their work for them.

Earlier this year we published an article by Alan Holton, a Moonstone Compliance associate, which dissected the proposed changes to the FAIS Act.

The FSB has set a number of Guidelines for FSPs who have debarred a representative. The latest such guidelines include requirements that documentary evidence and information supporting the reasons for debarment be included in the notice to the Registrar including, but not limited to, any notice to attend a disciplinary hearing, a copy of the service contract or mandate between FSP and debarred representative, a transcript or minutes and outcome of the disciplinary hearing and confirmation that the representative was given an opportunity to be heard.

There are no specific debarment procedures laid down in the Act, in the Regulations or in any Board Notice. The Registrar’s Guidelines are all that have been provided and remain just that – guidelines.

An aggrieved representative has no recourse to the Board of Appeal established by section 26 (1) of the Financial Services Board Act. This is because S 39 of the FAIS Act 2002 limits the right of appeal to any person who feels aggrieved by any decision by the Registrar or the Ombud only. A decision by an FSP is not appealable under the FAIS Act, 2002.

This is all set to change – and change radically.

The entire section 14 of the FAIS Act, 2002 will be replaced by new provisions which will require of the FSP to ensure that the debarment process is lawful, reasonable and procedurally fair.

Most importantly, the amended S 14 now provides for a right of appeal against such debarment. In essence then, the representative may now appeal to the appeal tribunal against the debarment decision of the FSP who debarred him or her. This new appeal process will simplify and expedite a remedy at minimal cost to the representative as compared with the current remedies available.

There is little doubt that failure to follow due process is going to result in numerous time-consuming appeal cases from aggrieved representatives.

At our upcoming Regulatory Update Workshops, Webber Wentzel will guide participants through the procedural and substantive requirements and propose best practice tools to ensure that debarments do not fall foul of the courts. See article below.

Restraints of Trade

We recently published an article on this subject which can be summarised as follows:

An adviser worked for a bank as short-term broker. He resigned and joined another brokerage. The bank brought the court action to enforce a restraint of trade agreement against the broker.

The broker did not dispute that his employment with his new employer was in contravention of the restraint of trade agreement. It was also common cause between the parties that the interest the bank sought to protect was the risk of damage to its client base.

The High Court found that agreements in restraints of trade are valid, but are only enforceable if not contrary to public policy.

Webber Wentzel will provide participants at the Regulatory Update Workshop with an overview of the principles of restraint of trade law, with particular emphasis on their application in the financial services sector.

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