A caveat to the debarring of financial representatives

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Renée Nienaber | Director | Nienaber Attorneysmail me |


A recent judgment in the Supreme Court of Appeal has reconfirmed that the duty of debarring representatives, who do not meet the requirement of a ‘fit and proper’ person as prescribed in the FAIS Act, falls fairly and squarely on the shoulders of financial services providers (FSPs).

In the case of Associated Portfolio Solutions (Pty) Ltd & Another v Basson & Others, the SCA clarified section 14(1) of the FAIS Act and held that once an employee who is also a representative is found guilty of acts of dishonesty which impacted on his/her integrity, the FSP has a duty to debar him. The Registrar of the Financial Services Conduct Authority (FSCA) had no basis, in the circumstances of this matter, to debar the representative (and key individual) and the duty fell to the directors of the relevant registered FSPs to do so.



The governing legislation thus clothes FSPs with a great deal of self-regulation of functions of advice and intermediary services. FSPs actually have a measure of authority to exercise statutory powers, particularly the authority to disbar a representative. Because a disbarment decision amounts to the exercise of a statutory power, it constitutes administrative action.

Significantly, the new garments come with a ‘laundry label’ that provides strict instructions for carrying out these administrative actions. In 2019 the FSCA published a Guidance Note that provides instructions for procedural fairness, including the process to be followed, the salient factors to be considered and the function of the FSCA upon receiving notice of such disbarment.

Where an employee is dismissed for conduct involving acts of dishonesty, the relevant facts established in a preceding disciplinary inquiry for misconduct may (and should) be taken into account in resolving to debar that employee as a representative and/or key individual, despite the measure of institutional bias which is present and tolerated in the mode of regulation prescribed by the FAIS Act. The duty to disbar based on acts of dishonesty lies with the FSP even if that individual is no longer a representative of that FSP (subject to the qualifications in section 14(1)(b) and section 14(5)).



Importantly, disbarment decisions can be taken on review under section 6(2) of the Promotion of Administrative Justice Act (PAJA), where grounds as procedural unfairness and bias can be taken into account by the Court.

In delivering the judgment, Judge Dambuza pointed out that Section 33 of the Constitution provides that everyone has a right to administrative action that is lawful, reasonable and procedurally fair. The Promotion of Administrative Justice Act incorporates the procedural fairness requirement by providing that ‘administrative action which materially and adversely affects the rights and legitimate expectations of any person must be procedurally fair’. What is fair in the particular circumstances, will depend on the context of each case. But the core of the right comprises the giving to the affected person of ‘adequate notice of the nature and purpose of the proposed administrative action’; a ‘reasonable opportunity to make representations’; and a ‘clear statement of the administrative action.’

It is therefore vital that the boards of Financial Service Providers comprehend the procedures and requirements of debarment fully, in conjunction with experienced corporate and employment law attorneys.


 



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