Secondary

Application

Importance of full disclosure at application stage

A recent Appeal Board case underlines the importance of full and frank disclosure during the licence application process.

In the original determination, the FSP and its two members, Ms S and Ms C were debarred for four years on three grounds. One of these concerned that they “…did not, when applying for a licence, make full disclosure of all relevant information to the Registrar, or had furnished false or misleading information (sec 9(1)(b))…”

They appealed against the Registrar’s decision. The information below is taken directly from the Appeal Board decision.

During 2006, a family trust laid a complaint with the Financial Planning Institute (“FPI”) against Ms C in respect of a financial transaction on 23 August 2005. At the time she was a representative of another financial services provider and a member of the FPI and subject to its disciplinary rules and code of ethics.

Disciplinary proceedings instituted by the FPI against her culminated in a finding on 15 August 2007 that she had contravened certain sections of the FPI’s code of conduct. Ms C was inter alia found guilty of having failed to execute the mandate given to her “properly, diligently and professionally”, and that she overreached her client by charging an excessive, unfair and inequitable fee. She was suspended from the FPI for a period of ten years and was fined an amount of R10 000.

Ms C noted an appeal against the findings of the disciplinary board but on 17 July 2008, while the appeal was pending, the FSP, represented by both Ms S and Ms C, applied for authorisation as a financial service provider. The application form indicated that Coetzee would be a key individual. It required, inter alia, answers in respect of two pertinent questions.

The first was whether she, in a period of five years preceding the date of application, had been found guilty by any professional or financial services industry body of an act of dishonesty, negligence, incompetence or mismanagement.

The second question was whether she had any additional information, which should be brought to the Registrar’s attention, which may have an impact on the evaluation by the Registrar of her good character and integrity.

The Registrar found that the answers given in respect of both questions were in the negative and consequently not only incorrect but also dishonest in the light of the then existing findings of the disciplinary body.

The appellants sought to escape the consequence of their failure to disclose these facts on a number of grounds.

In the first instance, the argument was that Ms C had not been found guilty of negligence. As mentioned, she had been found guilty of giving poor advice which, in terms of the question posed, was clearly a matter of incompetence. In addition, someone who fails to execute a mandate properly, diligently and professionally is by definition negligent and as appears from the notice of appeal which she filed through her attorneys, that is how the findings were understood.

The second argument was that the disciplinary board was wrong in its findings. In this regard the Board was subjected to a lengthy argument on the failings of the disciplinary board — which misses the point. These findings were extant at the time and they would or could have had an impact on the evaluation by the Registrar of the character and integrity of Coetzee. She was obviously entitled to inform the Registrar that she disputed the findings but that did not justify the negative answers.

The third argument concerned fairly technical legal grounds which the Appeal Board also rejected.

The Appeal Board also refers to section 2(4) of the Determination of Fit and Proper Requirements, which require of applicants for licences and their key individuals to be candid and accurate and to disclose all facts or information at their disposal which may be relevant for purposes of the Registrar’s decision.

(I found the conclusion of the appeal case slightly humorous – ed).

Mr Russouw, for the Registrar, submitted that the four-year suspension was wholly inappropriate (to which we agree) and that we should extend the period. To comply with the request, we first have to uphold the appeal and then increase the period. But since there is no merit in the appeal we cannot uphold it and hence cannot make an order in the stead of the existing one. The Registrar cannot under the Act appeal her own decision. Compare Registrar of Pension Funds v Financial Services Appeal Board (222/2015) [2015] ZASCA 203.

As to costs, the matter was not pressed and instead left to us to decide. If the Registrar is not serious about costs, it does not behove us to press the matter.

The appeal is dismissed.

There is much more to this case than just the facts extracted above. Click here to download the Appeal Board findings.

Comments are closed.