The Financial Services Tribunal (FST) has set aside a broker’s debarment after finding that her former employer had misused the debarment process to settle a labour relations dispute.
The FST did not accept that the financial services provider had produced sufficient evidence to justify the debarment on the ground of dishonesty or a lack of integrity.
Apart from the substantive issues, a procedural misstep during the debarment procedure was by itself sufficient to uphold the representative’s reconsideration application.
Background to the debarment
Margaretha van Staden, the applicant, was employed by Ita Vero Finansiële Dienste (Pty) Ltd as a short-term insurance broker in March 2019.
According to the FST’s decision, Van Staden alleged that her tenure was marked by interpersonal difficulties with the company’s owner and principal, leading to multiple written and final warnings between 2021 and 2024. She alleged these were issued under threats of dismissal, although she maintained she was absolved of misconduct.
Ita Vero countered that no significant conflict existed, pointing to her five-year employment without a formal grievance and denying any threats.
The employment relationship was terminated in September 2024 after Van Staden was told to attend a disciplinary hearing and was placed on suspension. The parties signed a settlement agreement that ended Van Staden’s employment effective 9 September.
Van Staden was employed by another financial services provider, Risk Fin, in November 2024.
The settlement agreement prohibited Van Staden from contacting Ita Vero’s clients, whether directly or indirectly. It further required her to refer all client inquiries to the FSP and prevented her from directing clients to other brokers or insurance providers. Additionally, the agreement stipulated that if clients contacted Van Staden, she must inform them of her departure and direct them to Ita Vero for assistance.
Van Staden’s departure and the settlement agreement were not the end of the conflict. Instead, Ita Vero alleged she violated the terms of the settlement agreement, as well as the employment agreement she signed when she joined the brokerage.
In a cease-and-desist notice sent in November, Ita Vero claimed Van Staden contacted its clients while presenting herself as its employee, registered claims on behalf of clients, and solicited its clients.
Van Staden denied all the allegations against her.
Ita Vero proceeded to initiate debarment proceedings the following month. The grounds were similar to the allegations in the cease-and-desist notice – for example, transferring “multiple” clients to her new employer, and soliciting its clients.
The notification of intention to debar contained other allegations of misconduct. It claimed that Van Staden’s employment by Risk Fin raised concerns about her honesty and integrity, because she had previously stated that she would leave the insurance sector and pursue a career in the hospitality industry. It also alleged that Van Staden joined Risk Fin in September 2024.
Ita Vero debarred Van Staden in December 2024. It said Van Staden violated the terms of the settlement and service agreements, was no longer fit and proper, and caused it financial and reputational damage.
Van Staden filed a reconsideration application in January this year. She contended that her debarment was unwarranted. Ita Vero debarred her to address contractual grievances, not legitimate FAIS-related contraventions.
Request to postpone hearing denied
The Tribunal’s decision addressed a procedural issue concerning the debarment hearing.
The debarment hearing was scheduled for 10 December 2024. On 4 December, Van Staden’s legal representative requested a postponement of the hearing to January 2025 because of a prior commitment. Ita Vero denied this request, and the hearing proceeded in Van Staden’s absence.
Ita Vero cited Van’s Staden failure to attend the hearing among its reasons for debarring her.
Van Staden argued that denying her request to postpone the hearing violated the audi alteram partem principle, which ensures an individual’s right to be heard in proceedings affecting them.
The Tribunal noted several points. It said Van Staden was entitled to legal representation, and the postponement request was for a short duration.
It deemed Ita Vero’s justification for denying the request – concern over losing clients to its competitors and the resultant loss of revenue and reputational damage – to be “far-fetched conjecture”.
The FST said the denial was unreasonable, irrational, and prejudicial to Van Staden’s interests. This procedural unfairness alone provided sufficient grounds for the reconsideration application to succeed.
Nevertheless, the Tribunal decided to address the substantive issues.
No material contravention of the FAIS Act
The Tribunal’s point of departure was the regulatory standards governing debarment, as articulated in the FAIS Act and Guidance Notice 1 of 2019.
Clause 3.1.1 of the Guidance Notice stipulates that debarment must be tied to:
- non-compliance with the Fit and Proper requirements outlined in section 13(2)(a) of the FAIS Act; or
- a material contravention of the FAIS Act by a representative or key individual.
Further, clause 3.5.1 clarifies that debarment should not be used to resolve contractual disputes or other grievances unrelated to the FAIS Act’s objectives. The Tribunal emphasised this restriction, noting that debarment’s purpose is to protect the financial sector and its consumers, not to adjudicate employment or contractual matters.
The Tribunal identified that the debarment stemmed from Ita Vero’s dissatisfaction with Van Staden’s alleged non-compliance with the settlement and service agreements. It concluded that these contractual grievances, while potentially actionable in a different forum, did not constitute a material breach of the FAIS Act or evidence of unfit conduct.
Across all the allegations, the Tribunal found a lack of evidence linking Van Staden’s actions to the grounds for debarment under the FAIS Act.
It said Ita Vero’s reliance on prior disciplinary warnings – despite the explanations provided by Van Staden – did not justify the conclusion that she lacked honesty, integrity, or fitness to serve in the financial industry. Moreover, the underlying facts of these warnings had not been sufficiently placed before the Tribunal and did not form the basis of the debarment.
Ita Vero’s assertion that Van Staden acted dishonestly by indicating an intention to leave the financial sector for a career in hospitality, whereas she joined Risk Fin, was irrelevant to her Fit and Proper status. “This claim bears no relation to client interests,” the Tribunal said.
The FST also rejected the allegation of dishonesty based on Van Staden’s date of employment at Risk Fin. It said Ita Vero relied on a FSCA screenshot purportedly showing a registration date of 2 September 2024. However, Van Staden correctly pointed out that the screenshot reflected the year 2004. A Risk Fin official confirmed that Van Staden’s employment as a representative commenced on 1 November 2024.
Ita Vero alleged that Van Staden improperly contacted clients. The Tribunal accepted her explanation that she reached out to two clients solely to inform them of her departure and direct them to Ita Vero for policy reassignment.
The Tribunal found no evidence to substantiate Ita Vero’s claim that Van Staden misrepresented herself as still in its employ.
It said Ita Vero’s allegation of substandard service in relation to one client was adequately explained by Van Staden. Furthermore, Ita Vero’s reliance on the client’s statement in support of its submission – which was not attached to the record – did not constitute proof that she acted dishonestly or rendered substandard service.
The Tribunal considered whether to refer the matter back to Ita Vero for reconsideration but concluded that such a step would be futile. It reasoned the debarment lacked any valid basis under the FAIS Act, and another hearing was unlikely to yield a different result. Instead, it advised Ita Vero to pursue contractual remedies through the appropriate channels.
The FST therefore set aside Van Staden’s debarment.
The Tribunal’s decision highlights that for a debarment to comply with the FAIS Act, it must be grounded in clear regulatory misconduct, not contractual disputes, and it must follow a fair process.
When faced with a reconsideration application, the FST will scrutinise the evidence presented by the FSP to determine whether it supports the contention that the representative’s misconduct means he or she is no longer Fit and Proper in terms of the FAIS Act and its supporting instruments.
