The recent decision in Gideon Pieter van Zyl v Kobie Spangenberg en Genote (Pty) Ltd by the Financial Services Tribunal ("the Tribunal") highlights the critical importance of compliance with the procedural safeguards under section 14 of the Financial Advisory and Intermediary Services Act 37 of 2002 ("FAIS Act") when effecting a debarment. The case underscores that failure to follow due process can render a debarment unlawful, regardless of the substantive merits.
Background of the Case
The Respondent, a licensed financial services provider ("FSP"), debarred the Applicant as a financial services representative under section 14(1)(a) of the FAIS Act. The Applicant applied for reconsideration under section 230 of the Financial Sector Regulation Act 9 of 2017 ("FSR Act"), challenging the debarment on procedural grounds.
On 3 February 2025, the Applicant addressed an email to the Respondent, tendering his resignation with effect from 28 February 2025. Shortly thereafter, the FSP alleged that the Applicant had moved certain clients to another FSP and was registered as a representative under that FSP's licence. The FSP's email of 13 February 2025 threatened possible debarment, recovery of losses and reporting to the Financial Sector Conduct Authority (FSCA) and South African Police Service (SAPS). On 25 February 2025, the FSP informed the applicant—in a single sentence—that he had been debarred "by the FSCA" and that any involvement in insurance-related business was unlawful.
Failure to Comply with Section 14 of the FAIS Act
Section 14(3) of the FAIS Act prescribes that before debarment, an FSP must:
- Give adequate written notice of its intention to debar, stating the grounds and reasons;
- Provide its written debarment policy and procedure; and
- Afford the person a reasonable opportunity to make submissions in response.
The FSP must then consider any response before deciding and immediately notify the person in writing of the decision, their rights under Chapter 15 of the FSR Act, and the requirements for reconsideration.
The Tribunal found that the Respondent failed to provide a compliant notice of intention to debar and deprived the Applicant of the opportunity to be heard. This non-compliance rendered the process procedurally unfair and unlawful. As such, the Tribunal did not even consider the substantive allegations.
The Tribunal's Findings
The Tribunal upheld the application for reconsideration and set aside the debarment, remitting the matter to the Respondent for reconsideration in compliance with section 14(3) of the FAIS Act.
The decision reaffirms that debarment is an exercise of administrative action, subject to the principles of lawfulness, reasonableness, and procedural fairness under the Promotion of Administrative Justice Act 3 of 2000 ("PAJA") and Guidance Notice 1 of 2019.
Key Lessons for Financial Services Providers
This case offers several important takeaways for FSPs:
Strict Compliance with Section 14: Procedural safeguards are not optional. Failure to comply can nullify a debarment, regardless of the strength of the allegations.
Adequate Notice: The notice of intention to debar must be clear, detailed, and provide the representative with a fair opportunity to respond.
Provision of Policy and Procedure: A copy of the FSP's debarment policy must be provided before any decision is made.
Right to be Heard: Allow sufficient time and opportunity for the representative to make submissions, whether orally or in writing.
Document the Process: Keep accurate records showing compliance with each procedural step to withstand Tribunal scrutiny.
Conclusion
This decision serves as a cautionary tale for FSPs: procedural fairness is not a mere formality—it is a legal requirement. Debarment, being a career-altering measure, demands meticulous adherence to the FAIS Act's prescribed process. Ignoring these requirements exposes FSPs to the risk of having their debarment decisions overturned, with possible reputational consequences.
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