This subject normally elicits more responses from readers than most others. Alan Holton of Compliance Monitoring Systems, and a Moonstone Compliance associate, takes an in-depth look at this very contentious issue from a legal perspective.
In a recent matter, an individual was purportedly debarred by a provider, several months after she left the employ of the provider. The FSB accepted the notification from the provider that the individual was properly debarred, and, in terms of S 14(3)(b) of the FAIS Act, took the decision to publish the individual’s name on the register of debarred representatives.
This would appear to be an incorrect decision on the part of the registrar as no debarment actually took place.
S 14 lays down very specific relationships that must exist and procedures that must be followed if a debarment is to be effected.
S 14(1) provides that an authorised financial services provider must ensure that any representative of the provider who no longer complies with the requirements referred to in section 13 (2) (a) or has contravened or failed to comply with any provision of this Act in a material manner, is prohibited by such provider from rendering any new financial service by withdrawing any authority to act on behalf of the provider, and that the representative’s name, and the names of the key individuals of the representative, are removed from the register referred to in section 13 (3).
The word “debarment” is used to describe a series of procedures that must be followed. These include the specific requirements that:
- The person must be a representative. This word is defined in the FAIS Act, 2002 and means any person, including a person employed or mandated by such first-mentioned person, who renders a financial service to a client for or on behalf of a financial services provider, in terms of conditions of employment or any other mandate
- The FSP must actually prohibit the representative from rendering any new financial service. This requirement is met by the provider actually withdrawing any authority to act on behalf of the provider; and
- The representative’s name, and the names of the key individuals of the representative, must be removed from the register referred to in section 13 (3).
In other words, the procedures are only capable of fulfilment if, and only if,
- the person who is to be debarred is still a representative of the provider,
- the authority to render financial services on behalf of the provider still exists and
- the name of the representative is still on the register referred to in S 13(3).
Then specific procedures must be followed: the authority to act must be withdrawn and the name of the person must be removed from the register.
These specific activities relate to representatives and not to former representatives. The relationship of provider and representative must exist. The specific procedures required in terms of S 14(1) constitute the debarment process and if no such procedures were followed or were capable of being followed, the FSP is not able to debar the individual concerned.
In part 2, published on Monday 18 April, Alan discusses Guidelines published by the Regulator, as well as two legal processes which shed further light on the matter.