The Financial Services Tribunal’s decision in January to set aside the debarment of a financial planner highlights the importance of FSPs adhering to the requirements of section 14 of the FAIS Act and Guidance Notice 1 of 2019 when seeking to debar a representative.
The applicant in the case resigned from African Wealth Organisation in January 2021.
According to the tribunal’s judgment, the applicant’s resignation “set a stage for the beginning of litigious history” between him and African Wealth.
In February, African Wealth served the applicant with a notice of intention to debar. The reasons included allegedly not acting in the best interest of clients and attempting to “poach” clients and employees.
In his response to the notice, the applicant stated that African Wealth had not complied with the jurisdictional requirements set out in section 14 of the FAIS Act, specifically section 14(1)(b). He referred to African Wealth’s replying affidavit to the High Court application in which it confirmed under oath that the alleged reasons for applicant’s debarment become known to the FSP after the applicant left its service and ceased to act as its representative.
However, African Wealth Organisation debarred the applicant in March 2021.
The jurisdictional issues in section 14 of the FAIS Act and the process followed by African Wealth also formed part of the grounds on which the applicant asked the tribunal to set aside his debarment.
In its judgment, the tribunal drew attention to the following sections of the FAIS Act:
- Section 14(1)(b): “The reasons for a debarment in terms of paragraph (a) must have occurred and become known to the financial services provider while the person was a representative of the provider.”
- Section 14(2): “Before effecting a debarment in terms of subsection (1), the provider must ensure that the debarment process is lawful, reasonable and procedurally fair.”
- Section 14(3): Before debarring a person, an FSP must:
- “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 unconcluded business, any measures stipulated for the protection of the interests of clients;
- “Provide the person with a copy of the financial services provider’s written policy and procedure governing the debarment process; and
- “Give the person a reasonable opportunity to make a submission in response.”
The tribunal also highlighted paragraph 3.1.4 of Guidance Notice 1 of 2019: “The first requirement means that, if the reason for debarment occurred or only become known after a representative had ceased to be a representative of the FSP, the FSP may not debar the representative and must refer the matter to the Authority.”
Based on the evidence before it, the tribunal found that the reasons advanced by African Wealth for debarment became known to it after the applicant had left its services. It therefore concluded that African Wealth did not have the jurisdiction to debar the representative.
The applicant had also taken issue with the procedure followed by African Wealth in debarring him. For example, he said he had been debarred on the basis of evidence not made available to him, and that he was not provided with an opportunity to respond to various annexures attached to the decision. The tribunal found that African Wealth had not been able to explain this either.
“It goes without saying that [the] failure to provide the applicant with documentation prejudice[s] the applicant and [is] therefore unreasonable and unlawful.”
The tribunal also ruled that the allegations of breach of restraint of trade on their own did not appear to sustain a ground for debarment. In this regard, the tribunal referred to its decision in April 2021 in the case of Gontse ltumeleng Michael Kekana v B-Sure Africa Insurance Brokers (Pty) Ltd.
Click here to read the full judgment.