Understanding debarment
What is debarment?
debar / dɪˈbɑ / verb
Oxford English Dictionary: To officially prevent (someone) from doing something; to exclude or prohibit.
Debarment is the formal process through which a Financial Services Provider (FSP) or the Financial Sector Conduct Authority (FSCA) removes or prohibits a representative or key individual from rendering financial services because they no longer meet the fit and proper requirements or have contravened provisions of the FAIS Act in a material way. A recent case, M I Mokhotsoa v Capitec Bank Limited, highlights how and when it is applied.
When does it happen?
When a representative:
Do not comply with the fit and proper requirements (honesty, integrity, competency).
Have committed misconduct such as fraud, misrepresentation, or gross negligence.
Fail to maintain regulatory requirements like continuous professional development (CPD).
Engage in conduct that brings the financial services industry into disrepute.
The Mokhotsoa case offers a practical example. When processing a debit order switch, Mokhotsoa entered an unrelated FNB account number instead of the client’s Capitec account details. Even though she resigned before facing a disciplinary hearing, Capitec continued with a debarment process, because her actions pointed to dishonesty and disregard for policy. In terms of sections 14(1)(b) and 14(5) of the FAIS Act, an FSP may debar a former representative if the misconduct occurred and became known while they were still employed, provided the debarment process is commenced within six months of their departure.
How does the debarment process work?
The FAIS Act requires that FSP’s ensure that the process is lawful, reasonable and procedurally fair.
The FSP sends a notice of intention to debar which informs the individual of the intention to debar along with reasons therefore and confirms their right to make submission.
The individual is provided with the FSP’s debarment policy as well as any other relevant information which sets out the debarment procedure.
The FSP must provde the individual opportunity to respond before a final decision is made.
If a final decision to debar is made, the FSP must provide the individual with the final notice of debarment, which sets out the reasons and effective date.
The FSP must update its internal representative register in order for the FSCA to reflect the debarred individual on the central debarment list.
The FSP must notify the FSCA of the debarment within 5 business days of the debarment decision
The FSP must provide the FSCA with all supporting documentation within 15 business days of the debarment decision.
In the Mokhotsoa matter, the Tribunal confirmed that Capitec complied with these steps and acted lawfully.
Why it matters
Debarment serves as a reminder that the financial services industry rests on trust and integrity. Ultimately, debarment is less about punishment and more about preserving the integrity of the financial services industry while ensuring clients remain protected.
