Secondary

Important Lessons from Debarment Appeal

There is a tendency to see legislation that regulates financial services as operating differently from other laws. While the processes may sometimes differ, the same principles apply. This became evident in a recent Appeal Board finding which highlighted the need for compliance with timelines and guidelines by all parties concerned, including the Regulator.

The Background

Mondisa Cindi was employed as a representative by Old Mutual 1 March 2009 to 31 October 2010, when she resigned.

In February 2011, Old Mutual lodged a complaint with the FSB after conducting a forensic investigation which revealed that she had submitted fictitious business.

On 5 March 2013, more than two years after receipt of the complaint, the FSB served Cindi with a notice of intention to debar. This was effected on 8 April 2013 on the grounds that she no longer satisfied the fit and proper requirements, in particular the personal character requirements of honesty and integrity.

In the meantime, Cindi was employed by PPS in July 2011. When she received the debarment notice, she elected to appeal against it.

The Appeal

In her grounds of appeal, Cindi contended that:

  • The notice of intention for debarment together with the grounds and the period of debarment should have been served on her within 30 days after receipt of any further information as envisaged in the Guidelines on section 14A debarments (the Guidelines).
  • In terms of section 14(i) a provider cannot debar a representative who is no longer in its employ and
  • The debarment period of five years was inappropriate. She contended that 2 years would be an appropriate sanction.

Counsel for the Registrar was unable to provide reasons for the delay, but cited some general causes such as the complexity of a case and a backlog at Registrar’s office. It also held the view that the debarment period of five years was justified if one considers that the conduct was “blatant dishonesty” and that she showed no remorse.

Analysis and Findings

Section 14A (i) stipulates: “The Registrar may… at any time debar a person, including a representative, for a specified period from rendering financial services…” The issue for determination is whether the decision to debar the Appellant was made within the time envisaged by the legislature.

On this, the Appeal Board states:

“…the only reasonable inference which can be drawn is that the delay was unreasonable. The complaint was with the Registrar for two years before a decision to debar was made. No other evidence or documents, apart from Old Mutual’s forensic findings, was before the Registrar at the time she/he made the decision to debar.”

Concerning the Guidelines referred to earlier, The Board quotes from clause 3 which reads:

“Once all the pertinent information required is received, then a notice of intention to debar is issued to the person in question. Such notice should be issued within thirty (30) days after receipt of any further information…”

The Appeal Board differed from the argument put forward by counsel for the respondent that the Guidelines “…are not published or gazetted and therefore does not have the status of a formal policy.”

“This Panel cannot support such argument. What is common cause is that both the Registrar and the FSPs were aware of these “Guidelines” during the applicable period and in all probability were required to follow the procedures set out therein.”

“Our Courts have established that “Guidelines” must be consistent with the provision of the specific legislation it makes reference to. It should thus be noted that despite “Guidelines” or policies not being published, they are certainly accepted as legally permissible.”

The Sanction

In reviewing the 5 year debarment, the Appeal Board considered the severity of the transgression as well as mitigating and aggravating factors and reduced the debarment period to 3 years.

Conclusion

“The Appellant has certainly been prejudiced with the extensive delay as the late decision to debar now interferes with her current employment and career plans. The notice was issued when she was already in employment for two years as a financial services provider with another employer. She could have already served two years of her debarment period if the decision was taken within a reasonable period and at best before she started her employment with PPS.”

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