When does an ‘employee’ become a ‘representative’ who can be debarred?

Certain conditions must be present for a person who is employed by an FSP to be regarded as a representative who is subject to debarment, the Financial Services Tribunal (FST) has ruled.

In 2022, Standard Bank discovered that a newly recruited employee (“MM”) had withheld material information about her employment history and made a false declaration about her “honesty, integrity, and good standing”.

It emerged that MM had previously been employed by Standard Bank as a teller, but she was dismissed for honesty in 2016 and listed on the Register of Employees Dishonesty System (REDS).

REDS is a database on which are recorded the names of employees in the banking industry who have been dismissed for dishonesty-related offences. A REDS listing is valid for five years. MM’s listing expired in 2021.

MM’s curriculum vitae omitted her previous employment with and dismissal by Standard Bank.

As part of the recruitment process, MM, on 28 April 2022, completed a declaration in which she confirmed that she had not previously been removed from any office of trust for dishonesty, and she had never previously “been refused a registration, approval, authorisation or licence to carry out a trade, business of profession or had that registration, approval, authorisation or licence suspended, revoked, withdrawn or terminated by a regulatory authority”.

In May 2022, MM was offered employment as an executive financial planner, starting on 1 June.

The FST said it was unclear when it was discovered that MM had withheld the information about her employment history and provided the false declaration. However, according to Standard Bank’s heads of argument, it was discovered during MM’s on-boarding, which, the tribunal assumed, was part of the process of uploading and registering MM as a financial planner on the bank’s system.

The tribunal said it could be accepted that the bank relied on 28 April as the date on which MM withheld the crucial information about her employment history and dismissal. This date fell within the recruitment process and was when MM completed the “honesty, integrity and good standing” declaration. The bank also relied on this date when it charged MM at a disciplinary hearing.

After discovering the non-disclosure, Standard Bank invited MM to provide a written explanation. In her response on 7 June, MM admitted to having been previously employed and dismissed by the bank following a dishonesty finding.

MM was suspended on 10 June, and the disciplinary hearing was held on 24 June.

The hearing found that MM was guilty of dishonesty because, when she applied for the position in April, she failed to disclose that she had been dismissed and listed on REDS for a dishonesty-related charge.

MM was dismissed on 24 July and informed that she would be listed on REDS and debarred, which occurred on 23 August.

 

The conditions attached to being a ‘representative’

In arriving at its decision, the FST drew attention to how the FAIS Act defines a “representative” and to what section 13 of the Act states about the qualifications of representatives and the duties of FSPs in relation to representatives.

The tribunal said an individual will be regarded as a “representative” in terms of the Act when the following conditions are present:

• The person must act in terms of a contract or mandate granted by the FSP to act on its behalf;
• The person must be registered as such in a register retained by the authorised FSP; and
• The register must contain the representative’s name, business address, the categories of competence, and whether the representative provides financial services as an employee or a mandatory.

The tribunal said the following factors were pertinent in this case:

• MM’s non-disclosure of crucial information was discovered while she was being on-boarded.
• MM’s debarment was based entirely on the results of the disciplinary hearing.
• There was no indication that during the period when it was discovered that MM had withheld information about her previous employment and dismissal by the bank, she was registered as a representative, nor was there any indication that she was engaged in rendering financial services to clients on behalf of Standard Bank at the time.

 

Appointment as a representative was still in progress

The FST said the fact that a person is employed by a bank does not necessarily translate into that person being a representative of the bank as contemplated in the FAIS Act.

“The appointment as a representative of an FSP is a deliberate process which comes into effect following a proper engagement. The individual must be appointed or given a mandate to the effect that she is a representative of the FSP, and her details must be maintained in a register as required in terms of section 13.”

Although MM was offered a position as a financial planner, which offer was accepted, the process to onboard and register her as such was not yet complete. What had been completed was the process to employ her, the tribunal said.

A debarment does not necessarily follow from an adverse finding in a disciplinary hearing held in terms of the Labour Relations Act. A debarment must stand on its own and must be as a result of non-compliance with the provisions of the FAIS Act and the General Code of Conduct.

The process to ensure that MM fitted the category of representative was still in progress when she withheld the information on 28 April 2022. The discovery of MM’s withholding of information occurred early in the process, the FST said.

Although MM was appointed in May 2022, it appeared that she was almost immediately suspended, and the matter was referred to Standard Bank’s disciplinary process. This led to a suspension of the process that would have led to MM progressing to an appointment as a representative of the bank.

The FST found that, at all material times, MM was not a “representative” as defined under the FAIS Act but an employee. Therefore, Standard Bank could not avail itself of the debarment process.

The tribunal set aside MM’s debarment.

Click here to download the tribunal’s decision.