Financial services sector must follow correct procedures in the debarment of FSP representatives
The debarment of financial services provider (FSP) representatives found guilty of misconduct must be used within the correct framework to ensure that it is not misused and that representatives have the opportunity to present their case.
Matome Thulare, HOD, FAIS Enforcement at the Financial Services Board (FSB) says that a debarment in terms of section 14(1) of the FAIS Act is intended to rid the industry of incompetent and dishonest representatives. “It is a powerful regulatory tool which should not be abused and only be used by financial institutions in a justifiable manner.
“For example, FSP representatives must be allowed the opportunity to be heard regarding their specific case before any decision is taken. While there is no prescribed procedure set out in the legislation, there is a statutory duty on financial institutions to comply with procedural fairness. Debarment should therefore not be used to satisfy a contractual or other grievance against a representative, unrelated to fitness or competency requirements.”
Thulare says that in certain instances representatives may be debarred as a result of a consumer complaint whereby the financial service rendered by the representative was not in accordance with the authority or instructions given for it. “For example, a consumer may request to take out an investment product for a specified term and amount of premium but the representative implements different instructions to those given by the client to earn more commission. In worse cases, the representative who previously rendered financial service to a client takes out a new policy on behalf of the client without being authorised or mandated to do so by the client.”
Thulare says that representatives must always be afforded the opportunity to present their version against the allegations of wrongdoing and the hearing must be free from bias, implying that the person hearing the matter must not have an interest in the outcome. “A financial institution should implement proper systems and procedures to investigate allegations of wrongdoing against their FSP representatives; and where the allegations are proven the company must immediately withdraw the mandate of the representative to render financial services on their behalf.
He adds that debarment would not be appropriate before due process has been completed, for example, if the representative has been suspended pending an investigation. “The Registrar is currently looking at making it compulsory for financial institutions to apply the principles of natural justice - which embodies important requirements of procedural fairness - before a debarment is affected. Failure to comply duly and fairly with the provisions of s 14(1) may attract regulatory action against the provider.”
Thulare says that financial institutions must appreciate that the power vested in their hands to debar FSP representatives is a public power to be exercised in accordance with the law. “The failure to exercise the power properly may attract regulatory actions against the financial institution, including the debarment of key individuals and the withdrawal of a license,” he concludes.
