Verification of Client Information

A recent decision by the FSB’s Appeal Board provides interesting insights into the determination of the period for which a person is debarred. A second aspect will be of interest to those who make use of “runners” – unlicensed individuals who solicit business for lawfully registered FSPs.

A representative was debarred, following the submission of fictitious business. She appealed against the two-year term of the debarment, which she felt was too harsh.
The original action against her was taken after her employer referred seven cases to the FSB concerning clients who deposed they had never taken out the policies submitted by her. Four of these involved clients she claimed to have written herself. The other three submissions were done via an associate. She never met the clients, and did nothing to verify the correctness of the information contained in the application forms provided to her by an associate, “Arthur”.

There was no denial by the applicant of the fact that she had contravened several regulations, and she admitted to having “conducted herself recklessly.”

In setting out its review of the sanction applied, the Appeal Board stated the following:

The FAIS Act entitles the Registrar to debar a person contravening any of its provision(s). The period of such debarment is unequivocally a matter for the Registrar’s discretion, which the Registrar is obliged to exercise judicially. The appropriateness of sanction will therefore vary according to the facts of each matter. As such, in determining the debarment period, the Registrar must have regard to whether such period is consistent bearing in mind the circumstances of the contravention complained of.

In this matter, the Registrar submitted that the nature of the conduct that the appellant exhibited would ordinarily warrant a debarment period of five years. However, in the final analysis the Registrar considered the time that had elapsed since the allegations first arose in February 2011 to the time of debarment in December 2013. The Registrar came to the conclusion that a debarment period of two years appropriately reflected a sanction for the conduct complained of in the circumstances.

During the appeal hearing, the Registrar submitted that the appellant’s apparent lack of remorse raised concerns that it was not unlikely that the appellant would in future repeat the offence complained of. The appellant, on the other hand, maintained that “…she was absolutely remorseful for her conduct albeit her remorse did not amount to admission of fraud.

Non-licensed entities

“Arthur”, who acted as runner for the appellant, “…was apparently not employed at the time he referred clients to the appellant. He made the referrals and provided assistance to ensure successful conclusion of the business.” He could not be traced during the investigation into the matter.

With regard to the actual handling of documents, the appellant stated that she provided Arthur with blank forms and other documents necessary to initiate a policy. The idea was for Arthur to meet clients on the appellant’s behalf.

The meeting took place in the appellant’s absence. Apparently Arthur met the second category clients and thereafter returned the signed forms with clients’ personal details that included their banking details. The appellant further advised that she received the clients’ respective personal details not on the forms but on separate pieces of paper in respect of each individual client. The information was returned to her in stages over a period of time.

The appellant advised further that working from the information received from Arthur, she then filled in the forms and performed other acts necessary to submit the policies to Liberty. She however did not verify any of the details with the persons from whom the information was supposedly received.

Responding to the question why she had not verified the details of the individuals concerned before submitting their policies, she stated that it was for her manager and not herself to establish the authenticity of submitted policies.

While the vast majority of financial advisers do their best to operate within the law, it is cases like these that make it very clear that there are still people out there who have scant regard for the need to do so.

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