By: Patrick Bracher, Norton Rose Fulbright South Africa
October 2022

The Financial Services Tribunal is inundated with applications for reconsideration of the debarment of financial services providers. Many of those applications, or the opposition to those applications, are misguided despite the Tribunal having set out the requirements for debarment in many accessible decisions. Anyone contemplating or opposing debarment should look at those decisions before taking any step.

The first thing to remember is that the application to the Tribunal is an application for reconsideration of the decision. It is not a time to produce evidence that should have been produced in the first place when the debarment proceedings were underway. The Tribunal will not readily grant permission for additional evidence to be placed before it even though the proceedings are conducted with as little formality and technicality, and as expeditiously, as possible. That does not mean that ordinary principles of law and justice are ignored.

Section 14(2) of the FAIS Act and Guidance Note 1 of 2019 deal with the debarment process. The proceedings are governed by the right to lawful, reasonable and procedurally fair administrative action guaranteed in Section 33(1) of the Bill of Rights, and the right to a fair hearing. Procedural fairness essentially includes the right of the person accused of wrongdoing to be informed of the purpose of the hearing and the charges leveled against them. They must be given an opportunity to respond to the allegations made and given sufficient time to prepare for the hearing.

A frequent mistake employers make is to confuse the relationship between the financial services provider and their representative rendering financial services under the FAIS Act, and the employer/employee relationship governed by the Labour Relations Act, 1995. The fact that an employee is guilty of a breach of employment conditions or labour laws does not necessarily mean that they should be debarred under the FAIS Act. Any hearing relating to FAIS Act contraventions must separately follow the requirements of natural justice in that regard.

Another frequent cause for confusion is the situation when the employee resigns before the debarment proceedings can take place. The employee’s resignation in terms of the employment contract cannot be rejected. Employer/employee contracts terminate by the lawful unilateral termination by one or other. For the purposes of debarment, the employer can proceed with the debarment proceedings if the factual reasons for the debarment were found out before the employee terminated the employment relationship, as long as the proceedings are commenced within the period allowed. Otherwise the employer is no longer an “aggrieved party” for the purposes of debarment and is not entitled to challenge any decision refusing debarment by the Financial Sector Conduct Authority.

The enquiry regarding debarment relates to the question whether the representative failed to meet personal character qualities of honesty and integrity, or contravened the FAIS Act in a material manner, or failed to meet the competence requirements.

Where the honesty and integrity of the representative is a basis for the debarment proceedings, an independent assessment needs to be made to determine whether the misconduct was sufficiently serious to impugn the honesty and integrity of the representative for the purposes of debarment. The test for dishonesty is both subjective and objective. Was the act of the representative one which an ordinary decent person considers dishonest (the objective test)? Should the representative have realised that what they were doing, by those standards, was dishonest (the subjective test)?

A representative is debarred on an industry-wide basis from rendering financial services to the investing public. That is the very reason why debarment should only occur after the representative has been given the opportunity of a fair hearing and a fair evaluation of facts put before the hearing.

Whilst debarred representatives will often take their chances on a better decision by the Tribunal even where they lack merits (and these efforts are frequently summarily dismissed), the financial services provider should avoid having an unfair debarment set aside and having to start again or letting a dishonest representative loose on the public. Nothing said in this article is new or cannot be found in the FAIS Act, the Guidance Notes and the many useful decisions of the Tribunal. It is not difficult to get it right the first time with a bit of care. The Tribunal will be thankful for a reduced number of debarment reconsideration applications.