FSCA concerned over delayed debarments by FSPs
Debarment is among the toughest forms of censure that South Africa’s financial conduct regulator can administer against an adviser or representative. Unlike a fine, which can be paid and hopefully recovered from, a debarment tends to linger.
Ensuring fit and proper advice
The latest Financial Sector Conduct Authority (FSCA) Regulatory Actions Report, covering the period 1 April 2024 to 31 March 2025, confirmed 131 debarments for the period, down from 156 in the prior year. Section 10 of the report describes a debarment under the Financial Advisory and Intermediary Services (FAIS) Act as “a regulatory mechanism used to protect the integrity of the financial services industry.” In simple English, it is an enforcement action that prevents individuals who are no longer fit and proper from rendering financial services.
Regulator-led debarments represent the thinner wedge of the industry-wide debarment pie chart. Per section 14(1) of the FAIS Act, financial services providers (FSPs) are obligated to debar representatives who are no longer fit and proper or who have materially contravened a provision of the Act. These actions must be reported by the FSP to the regulator to be published in the Central Register of Debarred Persons. In 2024-2025, FSPs debarred 1679 representatives, up a staggering 43% on the prior year.
According to the FSCA, “this upward trend underscores the growing vigilance among FSPs in maintaining ethical standards and regulatory compliance within the financial services industry.” Agreed, but does the punishment always fit the crime? After attending the Regulatory Actions Report media launch, your writer fired off some questions to FSCA Divisional Executive: Enforcement, Gerhard van Deventer. To begin, we asked about the subtle differences between an FSCA-led versus an FSP-led debarment.
Debarment times and types
“There are several differences between an industry- and FSP-led debarment,” he said. “The grounds on which the FSCA may debar a person are wider than the grounds on which an FSP may debar, and the FSCA may debar a person for a wider range of activities too, such as acting as a key person.” In an FSCA-led censure, the person is debarred for a specified period of time after which the debarment is ‘lifted’ whereas the FSP-led process remains in force for an indefinite period.
“The reappointment of a representative debarred by an FSP is subject to compliance with requirements as set out in Board Notice 82 of 2003,” Van Deventer said. Asked about the number of debarment actions taken by the regulator versus FSPs, he said this was not unusual considering the number of FSPs in the industry. Even so, the latest report did raise concerns over how some FSPs were handling the debarment process.
We asked the regulator to expand on what they deemed inappropriate conduct in this space, and whether they were concerned about potential ‘abuses of power’ by FSPs who could use the process punitively. “FSPs are empowered by law to debar individuals while they are in their employ,” said Van Deventer. “This authority extends for up to six months after the individual has left the FSP, allowing for situations where misconduct only becomes apparent after their departure.”
The principal concern here stems from FSPs intentionally delaying acting until the six-month window expires, thereby avoiding the responsibility of initiating debarment proceedings and the potential scrutiny of a reconsideration application. Such applications are a formal request to the Financial Services Tribunal (FST) to review a debarment decision, as set out in section 230 of the Financial Sector Regulation (FSR) Act.
Exposing the public to harm
According to the regulator, this delay creates a significant risk due to individuals who may not meet the fit and proper requirements continuing to operate within the financial services industry, exposing the public to harm. FAnews’ concerns over FSPs pursuing malicious debarments should be addressed by “the automatic right of the debarred individual to seek reconsideration through the FST,” and Van Deventer said this mechanism was frequently used by affected individuals to challenge debarment decisions.
Our next question explored the apparent severity of some sanctions. While FAnews recognises the seriousness of adviser misconduct, is there concern that a heavy financial penalty coupled with a 10-year debarment (effectively ending someone’s career) may not be proportionate, especially when compared to sentencing outcomes in commercial fraud cases? We asked. Van Deventer side-stepped the emotional loading in this question to offer a straightforward response.
“The debarment process is an administrative action that must be conducted in a manner that is lawful, reasonable and procedurally fair,” he said. “It includes adequate opportunity for the individual concerned to make representations and submit evidence, and the process has been affirmed by the courts as a legitimate and necessary regulatory mechanism.” Furthermore, debarments are reserved for serious transgressions including material dishonesty, misappropriation of client funds, criminal activity and other forms of misconduct that result in harm to clients.
Upholding market integrity
“When an individual is debarred, it signifies that they no longer possess the character traits of honesty and integrity [that are] required to be considered fit and proper to render financial services; allowing such individuals to continue operating in the financial sector would be inappropriate and could place the public at risk,” Van Deventer said. In this regard the regulator is delivering on its strategic objective of taking decisive action against misconduct to maintain confidence in the financial sector and uphold market integrity.
As a footnote, the regulator warned against equating administrative actions such as debarments with criminal sanctions. The considerations and legal standards applicable to each are distinct, and comparisons between the two are not appropriate. Turning to life after debarment, the regulator noted that there are clear processes for rehabilitation in both types of debarments. “Prior misconduct does not equate to an indefinite ban from the industry, as our legal system recognises the potential that persons with a history of misconduct are capable of reform and becoming individuals of good character,” Van Deventer said.
FAnews also wanted to know whether advisers received adequate protection during the debarment and appeal process given the reputational damage a debarment carries. Again, the response was couched in legalese. “Section 14 of the FAIS Act codifies a comprehensive administrative process designed to ensure procedural fairness in the debarment of individuals by FSPs,” Van Deventer said. The process includes mandatory steps such as providing written notice of the intention to debar, disclosing the grounds and supporting evidence, affording the individual a reasonable opportunity to respond and considering all submissions before making a final decision.
An automatic right for reconsideration
“To further enhance fairness, individuals subject to debarment have an automatic right to apply for reconsideration by the FST, an independent body established to review decisions made by FSPs and regulators,” he said. “Affected individuals are not left without recourse and no longer need to approach the courts directly to challenge a debarment.” Being able to skirt the court system is a definite plus, but despite the protections around the debarment process you cannot help but wonder about the taint that surrounds an unsuccessful defence.
To close, we remind FAnews readers that the primary goal of debarments is consumer protection. You can hardly criticise the tough actions being taken to ensure that only competent, honest and trustworthy individuals operate in the financial sector in the context of ever-present financial crime, dishonesty, misrepresentation and mis-selling.
Writer’s thoughts:
Despite assurances from the regulator that the debarment process is fair and equitable, it remains unclear whether a representative can emerge from a reconsideration untainted. Is enough being done to protect reputations where debarred individuals are subsequently cleared? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
