Until very recently, financial intermediaries and advisers (financial-service providers, FSPs) wishing to reappoint representatives who had been debarred from the industry, were required to comply, not only with requirements gazetted under the Financial Advisory and Intermediary Services Act, 2002 (FAIS), but also with an unauthorised “guideline” that the Financial Services Board (FSB) had posted on its website in 2011 which consisted of an illegitimate assortment of imprecise stipulations and ill-defined civil-servant discretions that were in barefaced violation of the Rule of Law.
An FSP employs or mandates representatives to provide financial advice or intermediary services to its clients on its behalf. If an FSP’s representative ceases to comply with prescribed fit-and-proper requirements, FAIS requires the FSP to withdraw his authority to act and debar him from rendering new services on its behalf. A representative who has been debarred by his FSP is also debarred from acting for other FSPs, say the courts.
FAIS prohibits a debarred representative from being reappointed, unless he complies with requirements for the reappointment of debarred persons as representatives, which the Registrar of FSPs has determined by notice in the Government Gazette.
The Registrar’s requirements (gazetted in 2003) say that, before a debarred representative can be reappointed, “at least twelve months” since his debarment must normally have elapsed. His unconcluded business at the FSP that debarred him and any legal proceedings must be finalised, and he must comply with the prescribed fit-and-proper requirements.
Over and above those duly-gazetted requirements, in 2011, the FSB posted on its website an unauthorised “guideline” for the reappointment of debarred representatives.
This “guideline” declared that there was a “misconception” that a debarred representative qualified automatically for reappointment after the requirements gazetted in 2003 had been complied with.
On the contrary, decreed this “guideline”. A representative would not be removed from a “list of debarred representatives” unless the reappointing FSP had convinced the Registrar that the representative had had a “genuine, complete and permanent reformation”, his “defect of character, attitude or other aspect” no longer existed, he would conduct himself “in a professional manner”, could “be trusted” to perform his duties “in a satisfactory way”, and that the provider was “satisfied” that he would not commit the “offence” again.
This 2011 “guideline” purported to ordain that, even if the FSP satisfied the Registrar in all respects, the application could “still be turned down” if the contravention was “of such a serious nature that the profession could not be seen to accommodate the representative within its ranks”.
This FSB “guideline” was invalid. It imposed requirements that were beyond the FSB or Registrar’s power to impose. The guideline could not be enforced by the FSB or Registrar in court against an FSP or its representatives who were reappointed without compliance with it.
FAIS does not require an FSP wishing to reappoint a debarred representative to convince the Registrar that the representative has reformed and is trustworthy. Still less does FAIS authorise the Registrar to turn down “the application” if the contravention was “of such a serious nature that the profession could not be seen to accommodate the representative within its ranks”.
This FSB “guideline” violated the principle of the Rule of Law that organs of state should not exceed their powers and is an illustration of how a regulator could see itself as above the law (as pointed out recently by the Free Market Foundation (“Debarred advisers: Twin Peaks could perpetuate ‘lawless’ guidelines – FMF,” Biznews, September 11, 2017).
How gratifying it must be for FSPs, for their representatives (debarred or not), and for everyone who cherishes the Rule of Law, that on 20 October 2017 the FSB (through the Registrar) suddenly announced the immediate withdrawal of the “guideline”.
The “guideline” had persisted for more than six years and the Registrar and FSB probably relied on it to destroy the livelihoods of many scores, or indeed hundreds, of representatives by permanently debarring them.
No doubt victims of this violation of the Rule of Law will take legal advice about whether they need to apply to court to set aside the FSB’s rulings and obtain compensation under the administrative-justice legislation.
A court can review an administrative action (such as this permanent debarment) if the action was not authorised by the law concerned (FAIS in this case), and may grant an order setting aside the action and, “in exceptional cases”, directing the official or organ of state who took it (the Registrar or FSB here) to pay compensation. This may be such an “exceptional case” justifying payment of compensation.
What I say here is not legal advice, and people should seek their own.
The guideline’s withdrawal does not affect the 2003 gazetted requirements for reappointing debarred representatives (i.e., that 12 months must have elapsed, etc.).
The FSB could well attempt to reimpose the “guideline” with its unconstitutional hodgepodge of vague conditions and ill-defined discretions by way of formal amendment of the 2003 gazetted requirements. Should the FSB try that, it will have a challenging task.
Gary Moore is a South African lawyer and senior Free Market Foundation researcher
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Gary Moore is a Senior Researcher at the Free Market Foundation. He was a practising attorney in Johannesburg for 30 years. He is the author of published articles and monographs about the rule of law, the legality of state action, the meaning of statutes, and laws affecting small business.