“One may not sow your own fields with your employer’s seed,” Judge Louis Harms said in a decision by the Financial Services Tribunal (FST) to dismiss a reconsideration application by two representatives who were debarred for giving confidential client information to a competitor FSP.
Both representatives worked at the Marble Hall, Limpopo, branch of Unigro Insurance Brokers (Pty) Ltd. The branch’s professional staff comprised the two representatives (titled “relationship managers”) and their two respective assistants.
On 5 February last year, Unigro instructed its compliance officer to remove all four employees from its register of representatives, because the FSP’s general manager for short-term insurance (who was also a key individual) believed something fishy was going on at the Marble Hall branch.
One of the representatives (“EH”) resigned on 2 February. Two days later, both assistants submitted their resignations. On 3 February, the other representative (“AM”), who was due to retire at the end of March, declined an offer of a year-long contract.
Something suspicious
According to the record of the debarment proceedings, on 4 February, the general manager asked Unigro’s IT department to send all the emails of the four employees to the Middelburg branch, to find out where the employees were going.
On the same day, the general manager and her husband, who was a Unigro director, drove to the Marble Hall branch, to find out what was going on there.
While travelling to Marble Hall, the general manager was told by phone that an examination of the emails showed that AM, EH and her assistant had been engaged in discussions with representatives of Succession Financial Planning (Pty) Ltd, a subsidiary of Sanlam and a “direct” competitor with Unigro.
The emails also showed that EH had accepted a mandate from Succession, and one of the three employees had sent quotations in respect of Succession’s products to Unigro’s clients.
When the general manager and her husband arrived at the Marble Hall branch, they saw one of the assistants carrying a box of files to a motor car. The assistant took the box back into the office. When challenged about what she had been carrying, the assistant said they were her personal items.
The combination of the simultaneous resignations, the employees’ alleged unwillingness to divulge where they were going, and the events of 4 February resulted in the decision to remove the employees’ names from the representative register on 5 February.
The four employees’ laptops were sent to Unigro’s head office in Centurion so that IT staff could recover data that might have been deleted. The data and emails were analysed to find out what had transpired between the employees and Succession’s representatives.
Disciplinary action
Unigro dismissed AM, EH and her assistant after a disciplinary hearing found them guilty as charged.
The charges against AM included:
- Using Unigro’s resources to seek to become an insurance agent with Succession;
- Obtaining quotations for Unigro’s clients from competitors;
- Offering products not those of Unigro; and
- Using Unigro’s resources to extract the FSP’s information and receive quotations for Succession for such clients.
EB was charged with:
- Using Unigro’s resources to communicate and advance her interests in applying to become a short-term insurance agent with Succession;
- Using Unigro’s confidential information to obtain quotations from the FSP’s direct competitors;
- Without authorisation, wiping her laptop to remove information pertaining to correspondence, client policies and other business information; and
- Using Unigro’s resources to communicate confidential client information and obtain or receive quotations from Succession.
EH’s assistant was charged with:
- Falsely denying knowing why EH had resigned or where she was going to work when asked about this on 2 February;
- Failing to act in Unigro’s best interests and breaching its policies by using the FSP’s resources to send details of four clients’ policies to her personal email address; and
- Using, without authorisation, Unigro’s resources to copy confidential client information.
Reasons for debarment
Later in 2021, Unigro initiated debarment proceedings against AH and EB. The hearing was presided over by a retired judge, Neil Tuchten, who published his decision to debar both in April this year.
Judge Tuchten found that both AH and EB breached their fiduciary duties to Unigro by “filching” confidential client information and passing it on to Succession or using it for the benefit of Succession and for their own private benefit.
He wrote: “The obvious motive on the part of both respondents in filching the information and promoting Succession’s interests was to build up their own practices at the expense of the FSP in the few months before they moved to Succession. Persons who plan and execute such a scheme over a period of some months, as the respondents did, in my view do not meet the fit and proper standards demanded by the FAIS legislation.”
Breach of contract may amount to a breach of FAIS
EB and AM applied to the FST for their debarment to be reconsidered.
Judge Harms said the applicants did not, in their reconsideration application, raise any issues about the correctness of Judge Tuchten’s factual or legal findings, except two.
Although the applicants said this did not mean they accepted his other findings, Judge Harms said that unless something is challenged or strikes the eye, the FST was justified in accepting the correctness of the judge’s findings.
According to the FST, the main ground of the reconsideration application was as follows:
“It must be noted that at any time, as an employee or a representative, I had the freedom to choose and determine my own destiny and future employment. When seeking employment elsewhere, it is not a scheme, nor is it fraudulent or dishonest. Secondly, clients do not ‘belong’ to an FSP; client[s] can choose who they want to do business with. There was no ‘stealing’ of clients; there was only free choice.
“My dispute with Unigro, and by their own admission, is primarily a contractual one, which revolves around my decision to leave. This is where Unigro and the judge got it wrong. The contractual dispute is separate and independent from a verdict of debarment processed under FAIS. It does not automatically follow that a contractual dispute should also trigger a debarment process under the FAIS Act. These are two separate and independent issues.”
Judge Harms said although contractual and FAIS duties may have different origins, they may overlap, and a breach of contract may, on the facts, amount to a breach of a FAIS duty.
In this case, “forming and executing a plan to filch confidential information and use it to enable Succession more effectively to compete with the FSP” is not only a contractual issue. The issue was not the right to terminate the employment contract; it was the circumstances surrounding the termination.
“At the very least,” Judge Harms said, the applicants were guilty of a breach of section 13(1)(c) of the FAIS Act and regulation 9(1)(f) of the Determination of Fit and Proper Requirements. “That was done by agreement and therefore amounted to a ‘scheme’ or arrangement or conspiracy, and ‘filching’ remains filching, whether in breach of contract or otherwise.”
Section 13(1)(c) prohibits a person from rendering financial services other than in the name of the FSP of which such a person is a representative.
In terms of regulation 9(1)(f), breaching a fiduciary duty is prima facie evidence that a person does not qualify as honest, having integrity and being in good standing.
Risk to the public
The second ground for reconsideration was that the representatives’ submission that their conduct did not prejudice clients. It was submitted that no clients complained they were stolen from, lied to, or defrauded. These allegations were made by Unigro.
In response, Judge Harms said although the aim of the FAIS Act is to protect clients and the public, this does not mean that “actual prejudice” is a prerequisite for debarment.
“The public is at risk if a financial services representative is prepared to filch confidential information or acts on behalf of an FSP without being that person’s registered representative.”
The FST dismissed both reconsideration applications.
Great reporting, thank you!