Tribunal Debarment Decision – Wilful disregard of FAIS requirements not acceptable

The abhorrent practise of submitting a single premium investment as a recurring premium policy to earn a substantially higher commission is nothing new. If you then, in addition, destroy documentary evidence in the hope that you will not be found out, you should expect dire consequences. An even worst-case scenario: if you repeat such a misdemeanour on more than one occasion.

This formed the essence of a recent request from an adviser for reconsideration of debarment by a product provider.

Details are contained in a recent Tribunal case

According to the FSP, the applicant contravened its financial advisory processes, the FAIS Act and the General Code of Conduct:

Contravention Her actions
Failed to render financial services honestly, fairly and in the integrity of the financial services industry. Abused her position of trust and authority as a financial planner.
Failed to exercise her judgment objectively in the best interest of the client. She acted against or in disregard of a client’s investment wishes and/or gave her wrong financial advice.
Requested third parties to amend instructions or documentation and thereby amending initial instructions without the knowledge or required consent of the client. She instructed an insurer to make changes to the payment method initially agreed to on by the client without the client’s consent or knowledge.
Failed to follow processes with regard to record-keeping, thereby contravening the respondent’s processes and the FAIS Act. She shredded or destroyed client files, something against the respondent’s policies and procedures and regulatory legislation.

Grounds for applicant’s appeal for reconsideration

According to the applicant’s legal adviser, the application for reconsideration raised four issues:

1. The applicant alleged that she acted on the client’s (apparently verbal) instructions
2. She acted honestly and diligently in providing financial advice;
3. She did not intend to destroy any client document; and
4. The disciplinary and debarment proceedings were brought to stifle competition.

The Tribunal’s finding

Fit and Proper

Although the applicant raised various reasons for the advice and options offered to the client, the Tribunal found that the applicant should have advised the client to conclude lump sum investments with the funds at hand instead of investments based on monthly premiums which were not sustainable. On her own version, it means that she did not advise the client of the option to make lump-sum investments instead of periodic investments. The denial of the applicant that she knew of the difference in commission structure was found to be improbable. This led to the conclusion that the way the policies were structured was to earn higher commission. If her denial were true, it means that she is not competent to act as adviser.

Destruction of client files

The Tribunal found that the destruction by the applicant of her client files amounted to a contravention of or failure to comply with a provision of the FAIS Act in a material manner. “We hold that the applicant’s excuses do not cut ice and that she was correctly found to have contravened or failed to comply with any provision of the FAIS Act in a material manner,” the chairperson of the Tribunal reiterated.

The applicant destroyed all her physical files. According to her she misunderstood the respondent’s instruction about the storage of files. She thought that if they were uploaded on her One Drive cloud file, the physical documents could be destroyed. However, investigation showed that only one file existed on her One Drive cloud file.

Ulterior purpose

The Tribunal dismissed this ground for reconsideration as the issue before them was purely factual and that is whether the jurisdictional facts for debarment were present. They pointed out that it is an application for reconsideration and not an appeal, and an attack on the reasoning of the key individual is in itself of limited value because the tribunal has to reconsider the facts.

Grounds for debarment

The Tribunal concluded that the jurisdictional ground for her debarment was satisfied and set the appeal aside.

In conclusion, the Tribunal noted the following interesting observation:

“Barring is not akin to a sentence. As long ago as 1778, Lord Mansfield stated in Ex parte Brounsall Cowp 829 that debarment (in that case of a solicitor) is not a punishment and that the question is rather whether the person concerned in the light of the conduct would be free from suspicion. In other words, debarring is for protecting the public and is not punitive,” the Chair of the Tribunal concluded.

Click here to download the case study that details the non-compliance of the financial adviser.

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