Standard operating procedures in terms of a debarment policy

Compli-Serve SA

Purpose and objective

Section 14 of the Financial Services and Intermediaries Act of 2002 (FAIS Act) was substituted with a new s 14 by the Financial Sector Regulation Act of 2017 (FSR Act). Section 14A of the FAIS Act was similarly repealed, with effect from 1 April 2018. The section places an obligation on FSPs to debar a representative who does not comply with the fit and proper requirements referred to in the Determination of Fit and Proper Requirements for Financial Services Providers (Board Notice 194 of 2017). The FSP must debar such person from rendering any further financial services and remove their name from the register of representatives that the FSP must maintain in terms of the Act.

The Act also makes provision for the debarred representative to appeal to the Financial Services Tribunal (FST) established through s 219 of the FSR Act.

Debarment in terms of s 14(1)

The FSP must debar a representative from rendering financial services in cases of non-compliance with fit and proper competence deadlines with respect to qualifications, regulatory examinations or CPD; or where the representative has contravened or failed to comply with any provision of the FAIS Act in a material manner.

Examples of behaviour that could lead to debarment:

Where the representative has submitted unauthorised policies.
Where there is evidence of dishonesty or misrepresentation by the representative.
Where the representative has been dismissed due to personal behaviour which is detrimental to the financial services industry.

Matters to consider before debarring a representative:

An FSP must exercise caution when debarring a representative.
Debarment must always be considered with great care and thorough examining of evidence to avoid bias.
Where an FSP has not followed a scrupulous process before reaching the decision of debarment, the FSCA may question the integrity of the FSP or Key Individual.
Where possible, a representative should be removed from the register, by mutual agreement, when it becomes clear that certain requirements will not or cannot be complied with.
Once the FSP is satisfied that the fit and proper requirements have been complied with, the person may be reinstated as a representative.
The contract or mandate of the representative must specify the circumstances in which the debarment procedures may be instituted by the FSP in order to avoid uncertainty by either party.

Procedure the FSP will follow to debar a representative

Before debarring a representative, an FSP must-

Give adequate notice in writing to the person stating its intention to debar the person.
Explain the grounds and reasons for the debarment.
Include any terms attached to the debarment in the notice.
Provide any information on any business of the representative that has not been concluded.
Provide measures to ensure the protection of customers as a result of the representative’s actions.
Provide the representative with a copy of the FSP’s written policy and procedure governing the debarment process.
Give the representative a reasonable opportunity to make a submission in response to the notice.

If the FSP is unable to locate a representative in order to deliver a document or information, after taking all reasonable steps to do so, including dissemination through electronic means where possible, delivering the document or information to the representative’s last known e-mail or physical business or residential address will be sufficient correspondence.

Procedure after notice has been given to the representative

After notice has been given to the representative, the FSP must consider any response provided by the representative and then decide whether to proceed with the debarment. Once the decision has been made to debar the representative the FSP must:

Immediately notify the representative in writing of the FSP’s decision.
Notify the representative of the right to appeal to the FST.
Notify the representative of the rules of the FST in respect of proceedings for the reconsideration of the decision by the FST.

Steps the FSP must take after debarment has been confirmed

Immediately withdraw any authority which may still exist for the representative to act on behalf of the FSP including the termination of mandate in terms of s 13 of the FAIS Act and/or any other contracts or agreements that authorises the representative to provide financial services on behalf of the FSP.
Remove the name of the debarred representative from the register of representatives.
Immediately take steps to ensure that the debarment does not prejudice the interest of clients of the debarred representative, and that any business not concluded of the debarred representative is properly attended to.
Notify the FSCA within five days of the debarment in the prescribed form and manner.
Provide the Authority (FSCA) with the grounds and reasons for the debarment within fifteen days of the debarment.

Form and manner of debarment

The FSP must compile the following during and after the debarment proceedings:

All documentary evidence and information supporting the grounds/reasons for the debarment.
A copy of the employment contract and/or mandate between the FSP and the debarred representative.
A copy of transcript / minutes and the outcome of the debarment hearing.
The forensic/investigation report and any other relevant documents.

The FSP must complete the 'Debarment Notification Form' and submit it to the FSCA by:

Email: debarments@fsca.co.za
Fax: (012) 422 2973; or
By hand to Riverwalk Office Park, Block B, 41 Matroosberg Road, Ashlea Gardens.

Rights of debarred persons

A representative who has been debarred has the right to appeal the debarment decision to the FST. The FSP must inform the debarred representative of the right to appeal its decision. The debarred representative must be referred to the Financial Tribunal Rules as provided for in section 227 of the FSR Act.

Reappointment of debarred persons

When an FSP chooses to reappoint a representative, the FSP must satisfy itself that:

12 months have elapsed since the debarment was enforced, where such debarment occurred as a result of contravening the fit and proper requirements as they relate to honesty and integrity.
All business of the former representative has been concluded
Complaints, legal proceedings or administrative procedures brought forward from persons affected by the former representative have been lawfully resolved.
The former representative has fully complied with any determination or court order relating to the debarment.

Where an FSP has debarred a representative as a result of failing to meet the competency requirements in terms of the Determination of Fit and Proper Requirements, the representative may be reinstated once they are deemed competent. In this case the 12-month stipulation will not apply.

Procedure to be followed when the FSCA debars a representative

The responsible authority for a financial sector law may make a debarment order in respect of a natural person if the person has contravened a financial sector law in a material way. An authorised FSP must within five days after being informed by the Authority of the debarment of a representative or a key individual, remove the name(s) of the representative or key individual from the register of representatives. The Authority must make known any such debarment and the reasons therefor in the Gazette or appropriate public media.