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Tribunal Debarment decisions – Why the increase?

Over the last few months we have seen an increase in debarment cases placed before the Financial Services Tribunal for reconsideration. Why? Has there been an increase in debarments? Has many of these debarments been effected as an injustice to representatives?

What changed?

A right to appeal

A representative now has a right to appeal against a debarment decision. Previously a debarred representative could not appeal to the FSB Appeal Board. The only resource that an aggrieved representative had was to apply to the High Court for a review of the debarment. In most cases this action was way beyond the financial means of most representatives.

However, under the Financial Sector Regulation Act (FSRA), everything changed dramatically. According to the rules issued by the chairperson of the Tribunal, “…a person who is aggrieved by a decision of a decision-maker may apply to the Tribunal for a reconsideration of the decision”.

In terms of section 39 of the FAIS Act any person aggrieved by a decision of an FSP to debar that person in terms of section 14 may now also apply for the reconsideration of the decision to the Financial Services Tribunal.

Clear debarment process determined

In one of the latest debarment tribunal cases the legal framework is  documented in detail, to assist FSPs in following the correct procedure.

“…before debarring a person the FSP must comply with the following jurisdictional factors, namely:

  • the reasons for the debarment must have occurred and become known to the FSP while the person sought to be debarred was a representative of the financial services provider;
  • before effecting the debarment, the FSP must ensure that the debarment process is lawful, reasonable and procedurally fair and finally; and
  • if the person sought to be debarred is no longer a representative of the FSP, the debarment process must commence within six months from the date on which the person sought to be debarred ceased to be a representative of the FSP.”

In a recent article on the subject, Alan Holton pointed out that, in the past, many debarments were done after the particular individual had left. “There were no real guidelines at all – just a form you had to submit. You could attach documents relating to the debarment, but in many instances those weren’t attached and debarments were registered by the regulator anyway. Some people were debarred because they changed jobs, so the former employer found something wrong and debarred them,” Alan explained at a Moonstone Regulatory Update last year. Read the article as it appeared in the Citizen.

Other steps to take before debarring a representative

In terms of section 14(3) of the FAIS Act, a FSP must, before debarring a person,

  • give adequate notice in writing to the person stating its intention to debar the person, the grounds and reasons for the debarment, and any terms attached to the debarment, including in relation to the unconcluded business, any measures stipulated for the protection of the interests of clients;
  • provide the person with a copy of the FSP’s written procedures governing the debarment process; and
  • give the person a reasonable opportunity to make a submission in response;
  • consider any response provided by the person, and then take the decision whether or not to debar; and immediately notify the person in writing of –
    ○ the FSPs decision;
    ○ the person’s rights in terms of Chapter 15 of the Financial Sector Regulation Act; and
    ○ any formal requirements in respect of proceedings for the
    reconsideration of the decision by the Tribunal.

A person who has been debarred therefore has the right to appeal against the debarment decision to the Financial Services Tribunal and the FSP must inform the debarred person of the right to appeal its decision.

Can a debarment hearing also be used as a disciplinary hearing? We will discuss this in a follow-up article.

The amended legislation definitely ensures reduced scope for abuse, with clear guidelines and a channel for appeals.

The FSCA regularly shares the outcome of Tribunal cases on its website. FSPs should take note of this resource (Click on the + sign to access all the individual cases grouped per year).

Moonstone also shares learnings from these cases in articles. Click here to read a few.

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