Regulatory update - Debarment for dishonesty

Patrick Bracher
Enjoy another regulatory update brought to you by Patrick Bracher from Norton Rose Fulbright, our Corporate Partner.

The Financial Sector Conduct Authority may make a debarment order in respect of a natural person who has contravened a financial sector law in a material way. The FSCA and the Financial Services Tribunal have taken a firm stand against dishonesty by any person. The fit and proper requirements demand, without qualification, the honesty and integrity of anyone conducting financial services at any level. They apply to all financial services providers, key individuals and representatives. The Tribunal has emphasised many times that the phrase “dishonesty and lack of integrity” means defect of character, unsoundness of moral principle, and corrupted virtue. The word “dishonesty” speaks for itself. The Supreme Court of Appeal has pointed out that a representative who does not meet the requirements of honesty and integrity poses a risk to the investing public generally. Such a person ought not to be unleashed on an unsuspecting public. That is why a representative will be debarred, sometimes for a long period, on an industry-wide basis from rendering financial services to the investing public.

Before a debarment can take place, the person must be given an opportunity to defend themselves under principles of natural justice. Clear charges must be put to the person who will be given a fair opportunity to respond. It is important not to confuse the debarment process with the process whereby a dishonest employee’s services are terminated following hearings relating to fair labour practices. Although some processes may be combined, it needs to be made clear that the process is not just termination of services, but involves debarment.

In decision after decision, the FSCA and the Tribunal have made it clear that dishonesty indicating character defects or unsound morality are evidence by any misleading of a financial customer or any attempt by the representative to manipulate transactions, or not declare them properly, in order to achieve targets or bonuses will be firmly dealt with. Pleading with the authorities that the debarred representative needs to work in the financial services industry or has done so for many years without blemish will not assist where the lack of moral integrity is clear from the facts. This is even so if the amount at stake is not substantial. Dishonesty does not have a threshold.

The financial sector is a widespread part of the economy including insurers, banks, intermediaries, pension funds, medical schemes intermediation, financial markets, collective investment schemes, foreign exchange transactions and other financial services. Being debarred for a number of years is a significant penalty and no-one in the industry should cut any corners, particularly for personal, financial or other advantage. Treating employers and customers honestly in every respect is the only measure of compliance tolerated.

Patrick Bracher
Norton Rose Fulbright South Africa
June 2024