Secondary

The Debarment Process

Monday’s article, Debarment under the Loop, was based on a High Court judgment which led to the reinstatement of a representative who was debarred. Our article evoked a flurry of enquiries from the industry.

In the court case, much was made of the part played by the Financial Services Board (FSB) in the debarment process. In this article, we focus on the duties of the debarment requesting entity, and the FSB’s obligations on receipt of a debarment request.

FSP Obligations

There is a specific document which requires completion, either in hard copy, or on-line, when a rep is debarred. It is difficult to see how one can get this wrong. It requires the following information:

  1. Full details of the FSP requesting the debarment.
  2. Contact details of the person to be debarred.
  3. The date from which the person is debarred.
  4. The reason or reasons for the request to debar.
  5. Supporting documentation.

The latter is indicated as including, but not limited to:

  • evidence and information supporting the reasons for debarment;
  • a copy of the service contract or mandate between FSP and debarred representative;
  • a transcript of a disciplinary hearing; and
  • forensic/investigation report (if any).

The final question reads: Was the representative informed of the debarment?

The Regulator’s Obligations

One has to differentiate between two types of debarments: one where the FSP initiates the debarment (Section 14(1) of the FAIS Act), and Section 14 A, which applies when the FSB effects the debarment.

In the Pienaar judgment, the first situation applied.

The FSB indicated, quite correctly, that its duty was to regulate the financial services provider (FSP) who, in turn, was obliged to ensure that its representatives complied with the requirements of the FAIS Act. In its input to the court, the FSB said that it “…is not required to evaluate or adjudicate on the reasonableness, validity or otherwise of the reasons for the debarment.”

It did, however, point out that it had an obligation to “…ensure that a financial services provider acts in accordance with the provisions of the Act. As such, the Registrar may engage a financial services provider to determine whether a debarment was effected in accordance with the requirements of section 14(1) of the FAIS Act.”

These requirements are that the reasons for the request must relate to the fit and proper status of the representative, and not for another reason. These reasons also guide the Registrar’s decision whether to accede to the request and place the representative on the register of debarred representatives.

In this particular case, the court found that the supporting documentation, submitted with the debarment request, was insufficient evidence of the reason given for the debarment.

Practical Problems

During this past week, I listened to a number of grim accounts of where the above procedure was either ignored, or manipulated to achieve a desired outcome which was not in line with what was legally correct.

A phrase that is likely to become part of the common compliance vocabulary is “Malicious Debarment.” The Francois Pienaar court case, referred to at the beginning of this article, appears to be one such a case where the debarment process was used to achieve an entirely different outcome to what the intent of the process is.

In the Pienaar case, the judge referred to a requirement in the Promotion of Administrative Justice Act that an individual is entitled to just and reasonable procedure. “Section 14(1) does not authorise unlawful acts either in respect of the conduct of the financial services provider or the first respondent (the FSB)”.

Once a debarment is done and dusted, the FSB is not empowered to undo it. A court of law has to nullify it, according to the judge in the Pienaar case. This would of course have serious financial implications for someone who had been fired unfairly, and is not allowed to operate in the industry for the period prescribed under the debarment conditions.

A reader suggested that the person orchestrating the malicious debarment should be debarred as well. It will be interesting to see what follows in the wake of the Pienaar case.

What complicates matters is that, in this particular case, the judge found that the FSB did not follow its own due process. If it had, it would probably not have debarred the representative. In fact, had the Regulator delved deeper, and come to the same conclusion as the judge, the person requesting the debarment may well have found herself in trouble, based on honesty and integrity considerations.

Please click here to download the Pienaar Judgment.

Click here to download the FSB Debarment Notification.

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