Alan Holton of Compliance Monitoring Systems, and a Moonstone Compliance associate, continues his in-depth look at this very contentious issue from a legal perspective.
The FSB produced a GUIDELINE ON THE DEBARMENT PROCESS IN TERMS OF SEC 14(1) dated 05 November 2013.
This document states the following at paragraph 3(i)
Providers must obey the law and must have authority in law for their decisions. If a provider had no mandate or contractual relationship with a representative at the time when the reason for the debarment occurred, it cannot effect a valid debarment. If, however, the reason for the debarment existed, but only came to the notice of the provider later, the process of debarment may still be embarked upon.
The first two sentences of this Guideline reflect the correct situation. However, the final sentence is arguably not correct and a careful reading of S 14 provides no support whatsoever for the view expressed in that sentence. If a person is no longer a representative of a provider, then, irrespective of whether or not the reasons for the debarment existed before or after the termination of the authority to render financial services on behalf of the provider, the provider is not able to debar that person.
This view is borne out in the matter that was heard in the Supreme Court of Appeal in 2015 (Financial Services Board v Barthram and Another – 3 All SA 665 (SCA) 1 June 2015). In this matter the Court held that: “A debarment of a representative in terms of s 14(1) is complete when the FSP has withdrawn the representative’s authority to act on its behalf and has removed such person’s name from its own register in terms of s 13(3). Moreover, the Registrar only gets to learn of a representative’s debarment, after the event, on being informed of such by the FSP in terms of s 14(3). Upon removal of the representative’s name from the FSP’s register, the FSB’s central register is correspondingly updated.” (Paragraph 15 of the judgement).
Therefore, unless such procedures are capable of being followed, no debarment takes place.
In the July 2015 appeal of Zakiyya Laher against a decision of the Registrar of Financial Services to debar her in terms of S 14A, the Appeal Board tacitly upheld the view that an existing relationship was required before an FSP could debar a representative. The decision says at paragraph 9 on page 5: “It is also curious to note that in the same month of April 2013 that Sanlam ordered an investigation into the conduct of Ms Laher, she tendered her resignation from Sanlam Life as a financial advisor to pursue a slightly different career path [. . .] However, as it became clear, the effect of her resignation from Sanlam Life would have been to render it impossible for Sanlam Life to take any action against her as they would no longer have jurisdiction over her. For this reason, her attempt to resign was not accepted.”
If Ms Laher had no longer been employed by Sanlam, Sanlam would not have been able to debar her.
A disciplinary hearing was held on 16 September 2013. In the result, Ms Laher’s contract with Sanlam Life was summarily terminated, effectively from 30 September 2013. On 30 September 2013, the compliance officer at Sanlam Life submitted a complaint against Ms Laher to the Registrar relating to the same conduct which was the subject of the Sanlam investigation and the disciplinary hearing in which she was found guilty.
The Registrar then proceeded to act in accordance with the provisions of S 14A and debarred Ms Laher.
Further support for disagreement with the view taken by the Registrar in the Guideline referred to above can be found in the fact that the legislature has, in terms of the Financial Sector Regulation Bill at present before Parliament, amended S14 of the FAIS Act, 2002 in a number of significant respects. In particular, the amended S 14(1) provides that an authorised financial services provider must debar a person who is or was, as the case may be, a representative of the financial services provider – and the new S 14(5) provides (or will provide) that: A debarment in terms of subsection (1) that is proposed to be undertaken in respect of a person who no longer is a representative of the financial services provider, must be commenced without undue delay from the date of the financial services provider becoming aware of the reasons for debarment, and not longer than three months from that date.
If the current legislation allowed for the debarment of a person who is no longer a representative of a provider, the proposed additional wording in the amended S 14 would not be necessary. Indeed, the procedures for the debarment of persons who are no longer representatives of an FSP are unambiguously set out in S 14A, these being the procedures that were correctly followed by Sanlam in the Laher matter.