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FSPs can’t simply debar representatives for any act of internal misconduct

The Financial Services Tribunal (FST) has drawn on the principles governing the fit and proper requirements for legal practitioners in setting aside the debarment of a bank’s representative on the grounds of dishonesty.

The tribunal also found fault with the procedure followed by First National Bank (FNB) in that it did not address the representative’s submissions in its decision to debar him.

The phrase “honesty and integrity” or its opposite, “dishonesty and lack of integrity”, is not defined in the FAIS Act, the General Code of Conduct, or the Fit and Proper Regulations, the FST said.

The tribunal empathised with FNB’s legal counsel that the lack of guidance as to the precise meaning of this phrase or its opposite is frustrating to FSPs, who are “saddled” with the responsibility of assessing whether their representatives are still fit and proper.

FNB dismissed a private banker, “YR”, in March 2021 and debarred him in August 2021.

A disciplinary inquiry found YR guilty of two charges of dishonesty under the bank’s Disciplinary Code and Procedure because:

  • He kept his business landline and mobile phone artificially busy so that he did not have to take calls from other representatives’ clients; and
  • He misrepresented his sales performance by claiming “upgrade” sales for clients who had upgraded using the bank’s digital channels, not through him.

FNB did not rely on the second act of alleged misconduct as a ground for debarring YR.

Following his dismissal, YR and FNB reached a settlement in terms of which the reason for terminating his employment was recorded as resignation. The agreement also stated that the settlement was reached without either party admitting liability.

Unprofessional conduct is not automatically dishonest

The tribunal said the legal principles governing the requirement to be fit and proper in the context of the legal profession apply equally to the debarment of FSPs and their representatives.

In this regard, it drew on the High Court case of Behrman v Law Society Transvaal (1980) and the subsequent case that came before the Appellate Division, Law Society Transvaal v Behrman (1981) to draw a distinction between unprofessional conduct and dishonesty or a lack of integrity.

Based on the High Court’s view that a person can behave unprofessionally without being dishonest or showing any lack of integrity, the FST said that for the purposes of determining the fit and proper requirement for FSPs and representatives, “honesty and integrity” means purity of character, soundness of moral principle and uncorrupted virtue. Conversely, “dishonesty and lack of integrity” means the opposite: defect of character, unsoundness of moral principle and corrupted virtue.

FNB’s counsel contended that the High Court’s decision was not good law because it was overturned on appeal.

But the tribunal said the Appellate Division did not reject the High Court’s formulation of the principles pertaining to honesty and integrity and its finding that Behrman’s failure to keep proper books of account did not involve dishonesty.

“Accordingly, the fact that the decision to re-admit Mr Behrman as an attorney was overturned on appeal on a completely different point (being that he was a repeat transgressor) does not invalidate the court a quo finding that the misconduct that led to his second strike-off did not involve dishonesty and the principles pertaining to honesty and integrity formulated and relied upon by the court a quo to reach that conclusion. What’s more, the Appellate Division did not express any disagreement with those principles.”

The tribunal said there is “a growing tendency” among FSPs to debar every representative who has been found guilty of any misconduct by the FSP’s internal disciplinary inquiry without conducting a proper inquiry into whether the misconduct in question involves dishonesty.

It said a person may have behaved unprofessionally without necessarily having been dishonest or having shown any lack of integrity.

In addition to the Behrman cases, the tribunal cited two Supreme Court of Appeal cases involving the honesty and integrity of attorneys to support its point: Summerley v Law Society, Northern Provinces and Jasat v Natal Law Society.

Based on the principles articulated in the cases it cited, the tribunal found that FNB’s submission that YR was dishonest, because he intentionally misled the bank and its clients into believing he was busy on his phones, could not be sustained.

Its view that YR’s conduct did not involve dishonesty was “fortified” by the fact that YR did not know this practice was not allowed, because it was common practice among private bankers in his team and the manager was aware of it but had never warned them it was not allowed.

YR also contended that FNB incurred no monetary loss, because he was servicing his own portfolio of private clients when his business phones were artificially busy.

Representative’s submissions must be considered

YR also objected to his debarment on procedural grounds, saying FNB had not stated the period for which he would be debarred.

The FST said there was “a far more serious omission” from the debarment notice: YR’s representations in response to FNB’s notice of intention to debar him were not included in the record of the decision and were not referred to in the debarment notice.

FNB’s counsel contended that the fact that the representations were not referred to simply meant that they were considered but rejected.

When asked why this would not be recorded in the debarment notice, if it were true, FNB argued that FSPs are required only to provide reasons for debarment and not to write fully reasoned judgments like courts.

The FST said FNB’s submissions were without merit.

“Failure to refer to the representations is indicative of FNB failure to consider those representations. In view of the applicant’s reliance on the settlement as having superseded the findings of the disciplinary inquiry and the dismissal, it would have been expected of FNB to address this issue by stating why it considered the settlement agreement irrelevant to the debarment inquiry – if that be its view.”

The FST said the debarment notice was liable to be set aside on review in terms of paragraph 6(2)(e)(iii) of the Promotion of Administrative Justice Act: a court or tribunal has the power to review an administrative action if the action was taken because irrelevant considerations were taken into account or relevant considerations were not considered.

The tribunal set aside YR’s debarment for substantive and procedural reasons.

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