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Why you should ask a regulator for reasons for a decision

If you are at the receiving end of an adverse decision by a financial services regulator, you should make use of your right to request reasons for the decision, because this may result in the regulator changing its mind, says Johan Loubser, an executive in the banking and finance department of law firm ENSafrica.

He said the reasons are often checked by the regulator’s legal department, which may alert the regulator that the wrong decision was taken.

“We’ve had situations where asking for reasons has led to an unfavourable decision being reversed and a favourable decision being taken.”

Colleague Jessica Blumenthal added it was important to ask for reasons because they can provide you and your legal counsel with insight into the policy considerations on which the regulator has relied that are not readily apparently from the legislation.

Whether or not you have to request reasons will affect the deadlines for filing a reconsideration application with the Financial Services Tribunal (FST).

In a recent webinar, Loubser and Blumenthal highlighted the important things financial services institutions should know about reconsideration applications and the FST’s procedures and powers.

Legislative framework in which the FST operates

The FST was created by chapter 15 of the Financial Sector Regulation Act (FSRA), which sets out the tribunal’s powers and the manner in which it operates.

In addition, the FST has made its own rules that further regulate its procedures.

Loubser said the broad context in which the tribunal operates is the Promotion of Administrative Justice Act, which states that before a party may bring an administrative decision for judicial review, it must first conclude all internal remedies, of which one is reconsideration by the FST.

The tribunal is independent, and must it exercise its powers impartially and without fear, favour or prejudice (section 219 of the FSRA).

The right to request reasons

Blumenthal said the reconsideration process matters, and it must be taken into account by anyone who is faced by a decision by a decision-maker.

Any person who is the subject of a decision and who, in terms of a financial sector law, is required to be notified of that decision has the right to require reasons for that decision and to apply to the FST for a reconsideration of that decision (section 228).

Both the right to ask for reasons and the right to apply for reconsideration must be communicated to the subject when the subject is notified of the decision.

Where a decision-maker does not provide reasons, it is good governance for a subject always to ask for reasons and to examine those reasons closely, to determine whether it is necessary to apply for reconsideration, Blumenthal said.

Pay attention to the timelines

If reasons must be requested, the request must be made within 30 days of notification of the decision, and the decision-maker or regulator has 30 days to provide those reasons (section 229).

The deadline for applying to the tribunal will depend on whether reasons were given with the decision or whether reasons had to be requested: either within 30 days of receipt of the reasons or within 60 days of notification of the decision.

It is possible to apply later, with condonation, if good reasons can be provided to justify the late application (section 230).

Blumenthal said it is important to note that the 30- or 60-day periods are ordinary days, not court days.

The tribunal, in its rules, has provided for a dies non period over the festive season, usually from about 15 December to 15 January, and it does not count those days for the purposes of its own timelines.

However, the 30- or 60-day period in terms of the FSRA does continue to run, and this is something to bear in mind if you want to have a decision reconsidered that was made in late November or early December, Blumenthal said.

She said the FST insists that the papers submitted to support the application must be “succinct” – its rules use this term 10 times, to emphasise that tight papers are required.

Leave is required before an application for reconsideration of a decision by the FAIS Ombud is permitted. The tribunal will grant leave only it believes the application has merit.

Reconsideration application does not suspend a decision

A decision is not suspended as a result of a reconsideration application (section 231).

If you want to have a negative decision suspended while waiting for a hearing, a separate suspension application must be made to the chairperson of the tribunal, and it is decided on the papers, unless chairperson decides otherwise, Blumenthal said.

She said the relative timelines indicate why it may be important to apply for a decision to be suspended: a suspension application can be decided in a matter of weeks, whereas the earliest dates for hearings for reconsideration applications made this month (April) are in October.

Note that a suspension application can be filed only after a reconsideration application has been filed.

Decisions the tribunal can and cannot reconsider

Loubser said there are certain decisions that the FST cannot reconsider, including:

  • A regulator’s decision to assess a levy, conduct an on-site supervisory inspection or launch an investigation; and
  • A directive by the South African Reserve Bank to a regulator following a “systemic event”.

The tribunal also cannot review a conduct or prudential standard for its compliance with the relevant statutory framework. A party that wants to challenge the standard will have to apply to the high court.

The FST may reconsider:

  • A decision by a financial sector regulator or an ombud, specifically the FAIS Ombud or the Pension Funds Adjudicator;
  • An FSP’s decision to debar;
  • Any decision by a market infrastructure (for example, JSE) that impacts a specific person or listed entity;
  • Any decision related to a specific person by the FSCA or the Prudential Authority; and
  • Circumstances where a regulator has failed to take a decision that it is required to take (for example, a regulator’s failure, within a reasonable period, to decide whether or not to approve a licence).

Limitations on the tribunal’s powers to make orders

Loubser said section 234 limits the FST’s powers to make orders:

  • It can summarily dismiss an application if it believes it is frivolous or vexatious.
  • It can set the decision aside and remit the matter to the decision maker for further consideration. It does not have to remit the matter.
  • It can make cost orders in exceptional circumstances.

He said the tribunal can substitute the decision-maker’s decision only in the following circumstances:

  • Decisions relating to administrative penalties (the tribunal may reduce or increase the penalty);
  • Decisions by FSPs relating to debarments;
  • Decisions by market infrastructures; and
  • Decisions prescribed by regulations, but no regulations to this effect have been published.

How panellists are selected

The Minister of Finance appoints the FST’s members and panellists who, together with the permanent members of the tribunal, may sit to reconsider matters.

The basic qualification requirement for members and panellists is that they must either be retired judges or lawyers or they must have experience or expert knowledge of financial products, financial services, financial instruments, market infrastructures or the financial system.

Members of the FST serve three-year renewable terms (section 221).

The chairperson of the tribunal manages the work of the tribunal, appoints its staff and makes its rules (section 220).

The current chairperson is retired Constitutional Court Justice Yvonne Mokgoro and the deputy chairperson is retired Supreme Court of Appeal Judge Louis Harms.

How the tribunal makes decisions

For each matter, the chairperson constitutes a panel. The panel normally consists of three or more members, of whom at least one must be a lawyer.

Members of panels are appointed from a list approved by the Minister of Finance, who must advertise for applications every five years.

The decision of the panel is the decision of the tribunal.

If members are divided on a decision, the majority makes the decision. If the members are evenly divided, the chairperson of the panel makes the decision.

A subject cannot appeal against a tribunal decision, but the decision can be taken to the high court for judicial review (section 235).

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