The Financial Services Tribunal (FST) has firmly rejected the notion that section 14(1)(b) of the FAIS Act can be given a “purposive construction”, to permit a financial services provider to debar individuals where the misconduct became known only after the representative relationship had ended.
Section 14(1)(b) imposes a specific temporal condition on the debarment process. It stipulates that the reasons for a debarment under section 14(1)(a) must have both occurred and become known to the FSP while the person was still a representative of the provider.
The FST this month delivered a consolidated decision involving three applicants, with whom Marsh (Pty) Ltd concluded franchise agreements in May and June 2018.
Marsh operates a business model that involves partnering with individuals or entities through franchise agreements to service its clients in remote or outlying areas. Under the franchise agreements, Perry Swart, Estelle Muller, and Cecile Hamilton were appointed as representatives to assist Marsh’s clients in the Klerksdorp municipal area.
Marsh alleged the applicants breached their franchise agreements and failed to conduct themselves with honesty and integrity. Citing these issues, Marsh debarred them under section 14(1)(a) of the FAIS Act, which mandates an FSP to debar a representative who no longer meets the fit and proper requirements or has materially contravened the Act.
Marsh acknowledged that the conduct leading to the debarments came to its attention only after the applicants were no longer its representatives. Despite this, Marsh contended that section 14(1)(b) should be given a purposive interpretation to allow the debarments to stand.
The applicants brought a reconsideration application and an application to suspend their debarments pending the Tribunal’s decision.
The Tribunal granted the suspension applications, indicating that Marsh had acted unlawfully by debarring the applicants. The FST said the language of section 14(1)(b) is clear and unambiguous, requiring that the reasons for debarment be known to the FSP during the period when the individual was a representative.
It was undisputed that the precondition of section 14(1)(b) was not satisfied. Marsh’s awareness of the alleged breaches and lack of honesty and integrity arose only after the applicants’ representative relationships with Marsh had terminated.
The Tribunal further clarified the appropriate course of action when an FSP discovers potential grounds for debarment after a representative relationship has ended. In such circumstances, section 14 of the FAIS Act no longer applies, and the matter becomes the responsibility of the Financial Sector Conduct Authority.
The FSCA has the authority to debar an individual under section 145 of the Financial Sector Regulation Act (FSRA), provided it follows due process.
Marsh, in a letter addressed to the Tribunal and copied to the FSCA, requested that if the Tribunal did not accept its purposive interpretation of section 14(1)(b), the FSCA should exercise its jurisdiction to maintain the debarments.
The FST noted that Marsh appeared to misunderstand the relationship between the Tribunal and the FSCA, because the Tribunal does not direct the FSCA’s actions. Instead, it is incumbent upon the FSCA to assess whether debarment is warranted under the FSRA based on the facts of the case.
Requirement must be met
In the reconsideration application, the Tribunal returned to Marsh’s contention that section 14(1)(b) should be given a purposive interpretation, implying that the provision’s intent should allow debarment even if the reasons became known after the representative relationship ended. The FSP maintained it had an obligation under section 14(1)(a) to debar the applicants based on their alleged lack of honesty and integrity.
The Tribunal found this contention unsustainable.
The Tribunal determined that Marsh should not have debarred the applicants under section 14 of the FAIS Act. Instead, if the facts supported debarment, Marsh should have approached the FSCA in terms of section 145(d) of the FSRA.
The Tribunal reinforced its position by citing paragraph 3.1.4 of the FSCA’s Guidance Note 1 of 2019, which states: “The first requirement means if the reason for the debarment occurred or only became known after the 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.”
The guidance interprets “the first requirement” as referring to the condition in section 14(1)(b) that the reasons for debarment must become known while the person was a representative.
The Tribunal concluded that Marsh lacked jurisdiction to debar the applicants under section 14, because the statutory preconditions were not met. The applications for reconsideration were granted, and the debarments were set aside.
