FAIS debarring rules could hurt employees - expert

Johannesburg – Financial service employees will get the shorter end of the stick when it comes to the debarring rules of the Financial Advisory and Intermediary Services (FAIS) Act.

According to senior Free Market Foundation researcher Gary Moore, the debarring rules of the Act has an element of discrimination.

The act allows the Financial Service Board (FSB) to lay out requirements for a person to be appointed a financial service provider’s representative. These requirements include standards of competence, operational ability, integrity and personal financial soundness, explained Moore.

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"FAIS obliges a financial services provider to banish or 'debar', from the industry as a whole, a representative who no longer complies strictly with these requirements."

The financial service provider then informs the FSB that an employee has been debarred, with reasons. Thereafter the FSB publicises this and the person may no longer be employed by any other financial service provider or provide financial services. This rule was affirmed by the Supreme Court of Appeal in 2015, said Moore.

"But with all due deference to the Court … it is highly probable that this statutory responsibility of employers to expel representatives from the industry is being carried out very unevenly," he said.

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"It is a matter of simple common sense that not all employers will exercise this power to debar representatives in a uniform and consistent way." He explained that in some instances, smaller employers won’t have the resources to consistently carry out the process.

In turn, the FSB can withdraw the licences of financial service providers if they do not carry out the responsibility of debarring employees for not complying. "In this way, FAIS provides indirectly for the private policing of representatives who are no longer able to meet their fit and proper requirements.

"But this indirect supervision, where the FSB monitors financial service providers who in turn monitor their representatives, can at best be imperfect in practice."

This has the effect of“"materially discriminating" between different representatives, Moore said.

*Gary Moore is a South African lawyer and senior Free Market Foundation researcher. 

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