With Charene Nortier and Tshepo Mogale – Managers: Financial Advisors and Intermediaries Department
The Financial Advisory and Intermediaries department at the FSCA is responsible for supervising the business conduct of entities licensed to provide financial advice; and entities authorised for product sales and execution on a non-advice basis, where the entity is not is not authorised for the actual issue of the products concerned. This team follows a risk-based classification informed by the different adviser competency requirements being implemented through amendments to the FAIS fit and proper standards. The team is also responsible for dealing with debarments of natural persons in terms of section 153 of the FSR Act, i.e., debarments by the Authority.
At a recent FSCA FAIS Webinar session, spearheaded by the Financial Advisory and Intermediaries department, Charene Nortier had a detailed discussion with Tshepo Mogale on how Debarments are carried out by the FSCA in terms of Section 153 of the FSR Act.
This is how the conversation unfolded.
1. What is a debarment?
A debarment means that the representative and/or any person is debarred on an industry-wide basis from rendering financial services to the investing public. There are two processes of debarments which sometimes confuse Financial Services Providers (FSP). Firstly, the process under Section 14 of the FAIS Act which governs FSPs to debar its representatives and secondly the process under Section 153 of the FSR Act, which governs the FSCA to debar a natural person. Section 153 of the FSR Act repealed Section 14 A of the FAIS Act as of 1 April 2018. The former process is initiated by the FSP and the latter by the FSCA.
2. What is Section 153 of the FSR Act all about?
In terms of Section 153 of the FSR Act, 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;
- Contravened in a material way an enforceable undertaking that was accepted by the responsible authority in terms of section 151 (1);
- Attempted, or conspired with aided, abetted, induced, incited or procured another person to contravene a financial sector law in a material way; or
- Contravened in a material way a law of a foreign country that corresponds to a financial sector law.
3. It is clear that the contravention must be material. How does the FSCA find out about the contravention?
The FSCA receives information about the conduct of a natural person, either from an FSP, members of the public, the ombudsman, other regulators, the clients of the respondent or any other source. The FSCA then investigates the matter and upon completion, an ITC check is conducted on the person’s latest contact details in compliance with section 155 of the FSR Act. A notice of intention to debar the said person is then drafted and sent to the respondent in order to allow them a chance to respond to the allegations.
4. What happens once the notice of intention has been drafted?
The affected person is notified of the debarment, the intended period of the debarment and any terms to be attached to it.
5. How much time does a person have to respond to the intention to debar? And once a person has responded, what happens then?
As soon as a person receives the notice, they have one month within which to respond to the allegations. Depending on the response, or lack thereof, the matter may be closed, or a final debarment order be granted.
6. So, let’s unpack this a little more. Before serving the intention to debar, an investigation is concluded and a notice of intent to debar is sent and depending on the response, the case may be closed without it being taken any further?
Yes, this is correct Charene. After considering the respondents submission and accompanying evidence, together with the information at our disposal, the decision to debar or not is then taken. In the event that the Authority decides to debar a person for a stipulated period, as soon as the debarment period lapses, the debarment will automatically cease. Thereafter, a previously debarred person may apply to either be a Key Individual (KI), a Financial Services Provider (FSP) or a representative (rep). If a person applies to be a FSP or a KI, the application must be considered by the FSCA. If a person applies to be a rep of an FSP, then it is up to the FSP to conduct due diligence, to determine if the applicant is fit and proper.
7. What is a person not allowed to do once they have a debarment order issued against them?
A debarment order prohibits a person from:
- Providing or being involved in the provision of specified financial products or services, generally or under the circumstances specified in the order.
- Acting as a key person in a financial institution or providing specified services to a financial institution.
- A debarment order against a natural person takes effect from the date it is served or at a later date, according to the order.
- A person who is subject to a debarment order may not engage in conduct that directly or indirectly contravenes the debarment order.
- The responsible authority must publish the debarment order.
8. So, after publishing the debarment order, can prospective employers search on the FSCA website to see if there is a debarment order issued against a person?
Yes, this information is accessible to employers as well as the general public. The search can be conducted by using the person’s ID number, name and surname.
9. What does the FSCA consider when determining the period of debarment?
The FSCA considers:
- The seriousness of the allegations levelled against a person;
- The actual or potential prejudice suffered by the client;
- The number of allegations levelled against the person;
- The negative impact the conduct has had on the financial industry.
10. Can someone appeal against a debarment order?
Yes. A person aggrieved by a debarment decision may apply to the Tribunal for a reconsideration of the decision in terms of section 230 of the FSR Act. The contact details of the Tribunal are 012 741 4302 or via email applications@fstribunal.co.za
11. What does the FSCA consider when determining the period of debarment?
- Dealing with applications that have no merit such as in the case of a debarment order being granted because the person was involved in fraud. In a case involving fraud, there are no legal grounds for appeal nor any prospect for success.
- Applicants not meeting the prescribed period within which to apply, without a just reason. A prescribed period in which to lodge an appeal is 60 days.
- Failure to cite the correct parties or misunderstanding who the decision maker is. For example, if a representative is debarred by an FSP, then the FSCA in this case is not the decision maker.
- Lastly, failure by applicants to adhere to the rules of the Tribunal in their application.
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