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THE FINANCIAL SERVICES TRIBUNAL

 

CASE NO: FSP31/2023

 

In the matter between:

 

NKOSINGIPHILE KHETHEAZAKHE MABASO      Applicant

 

and

 

DISCOVERY CONNECT DISTRIBUTION SERVICES (PTY) LTD      Respondent

 

Decision on Papers

 

Date of Decision:         6 September 2023

 

Summary:  Application for Reconsideration in terms of section 230 of the Financial Sector Regulation Act, 9 of 2017 ("FSR Act") to debar a representative in terms of section 14(1)(a) of the Financial Advisory and Intermediary Services Act, 37 of 2022 ("the FAIS Act"): Non-compliance with requirements of section 13(2)(a)of the FAIS ACT read in conjunction with section 2 of the General Code of Conduct for Financial Service Providers: Failure to comply with the fit and proper requirements, particularly the character qualities of honesty, integrity, competency and acting in the best interest of clients determined under section 6A of the FAIS Act read with section 8(1) of Board Notice 194 of 2017.

 

 

DECISION

 

 

A.      INTRODUCTION

 

 

1.        The Applicant applied for the reconsideration of a decision taken by the chairperson during a FAIS Debarment Inquiry of Discovery Holdings Ltd ("Discovery") held on 28 March 2023, which decision was received by the Applicant on 17 May 2023, to debar him in terms of section 14(1)(a) of the FAIS Act.

 

2.        The Respondent is Discovery Connect Distribution Services (Pty) Ltd. Discovery Connect Distribution Services (Pty) Ltd and Discovery Insure Ltd are both providers of Financial Products, as defined in section 1 of the FAIS Act. We will refer to these legal entities as "Discovery" or the Respondent".

 

3.        The parties waived their rights to a formal hearing.

 

B.      RELEVANT BACKGROUND FACTS AND CHRONOLOGY OF EVENTS

 

4.       The Applicant was previously employed as a financial services representative (sales agent) by Discovery.

 

5.       Discovery identified a trend in 2022 where representatives informed Discovery on inconsistencies on several client premiums and risk profiles. A communication was sent to all representatives, including the Applicant, indicating that should they identify any discrepancies while rendering financial services to clients, they must inform the Respondent immediately.

 

6.       The matter was referred to Discovery Insure product house for further investigation and the Pricing and Analytics Team identified that the representatives (sale agents) activated policies where the affected benefits received premiums 46% lower than they should have with some policies being discounted as much as 97%. The issues affected around 1200 policies activated by approximately 15 manipulating sales agents and totalling R1.3 million in monthly premium being lost per month.

 

7.       The investigation raised the following linked to the policies the Applicant activated:

 

7.1   The Applicant manipulated 93 policies where clients' drivers' licence type, year issued, etc., were altered. This affected premiums and excess amounts. The licences and excess were manipulated to reduce the clients' premiums during the period of July to November 2022. The changing of the licence details resulted in a lower premium. The Applicant earned commission and gained financially. It also resulted in him (the Applicant) achieving his sales targets.

 

7.2   The Applicant's actions led to the clients' premiums be reduced and not aligned to the clients' risk profile.

 

7.3   There were instances where the Applicant reduced the clients' premiums by 75% of the actual premium.

 

7.4   The Applicant failed to follow the script and the process where the clients requested a maximum of R 20 000 excess in which case it must be routed to underwriting for further review. The Applicant failed to escalate such matters and continued to activate the policies.

 

7.5   As a result the clients have been quoted and activated with a premium not based on the system generated premiums and based on the clients' risk captured by the agent.

 

7.6   The financial impact on the policies the Applicant activated has resulted in Discovery suffered a financial loss of R 92 635.

 

7.7   The Applicant failed to notify the management team/business of any discrepancies as he was informed to do.

 

7.8   The Applicant conduct exposed the Respondent to sanctions and regulatory fees as it posed a significant financial and reputational risk for the Respondent.

 

8.       The outcome of the above investigation led Discovery to commence debarment proceedings against the Applicant in accordance with Discovery's Debarment Policy and Process.

 

9.       The Applicant was provided with the Notice of Intention to Debar and a copy of the investigation report. The Applicant requested a verbal debarment hearing. A Notice to Attend the FAIS hearing was subsequently sent to the Applicant. The Applicant was also requested to provide management with his evidence pack which he failed to do.

 

10.   It was found at the FAIS debarment hearing that the Applicant's misconduct was sufficiently serious to impugn his honesty and integrity and debarment was recommended.

 

11.   The Applicant applied for reconsideration of the decision taken by Discovery to debar him.

 

D.   APPLICANT'S GROUNDS FOR RECONSIDERATION

 

12.   The grounds relied on by the Applicant in his Application for Reconsideration are briefly as follow:

 

12.1   The chairperson provided false evidence;

 

12.2   The chairperson misled the nature of the hearings;

 

12.3   The chairperson withheld key evidence;

 

12.4   Concerns were raised regarding the chairperson's integrity and impartiality;

 

12.5   The central charges, involving seven allegations of manipulation were inexplicably ignored by the chairperson during the hearing, despite constituting the primary focus of the proceedings;

 

12.6   The chairperson appeared to pursue a predetermined agenda, fabricating scenarios, and misrepresenting evidence to fit the Respondent's preconceived judgment;

 

12.7   The chairperson made contradictory claims about testimonies and witnesses, casting doubt on their commitment to accuracy;

 

12.8   The chairperson alleged that the trend started in January 2022. According to the Applicant he was not employed by the Respondent in January 2022;

 

12.9   The chairperson stated that there were 93 cases identified of license manipulation whereas the charge sheet shows 7 cases;

 

12.10   According to the Applicant evidence highlighting the consistency of license types before and after the investigation was provided, which was disregarded;

 

12.11   The Applicant in augmented grounds complaint that the chairperson was not an independent person as he (the chairperson) is employed by the Respondent in the banking department and according to the Applicant he was biased; and

 

12.11 The chairperson was not interested in the truth and in a fair and unprejudiced hearing.

 

F.   TRIBUNAL'S DECISION

 

13.   Against this background, before us is the Applicant's application for reconsideration of the decision of the Respondent to debar him.

 

14.   Section 6A(2)(a) of the FAIS Act gives a definition, by way of a list, of what "fit and proper" includes:

 

"(2) Fit and proper requirements may include, but are not limited to, appropriate standards relating to –

 

(a)  personal character qualities of honesty and integrity.

 

15.   In terms of section 7(1) of Board Notice 194 of 2017 the fit and proper requirements relating to honesty, integrity and good standing apply to all FSPs, key individuals and representatives. At all relevant times the Applicant was a representative of Discovery, a registered FSP.

 

16.   Section 8(1)(a) of the Board Notice states that a person referred to in section 7(1) must be a person who is - honest and has integrity.

 

17.   The Applicant was debarred on the grounds of dishonesty and lack of integrity because he manipulated the system by exiting the quote repeatedly while changing the license details and the excess to reduce the premium until he reached a desired premium and only thereafter it was saved on the system. The quote would not refer to underwriting unless the agent saves it once the excess is changed to R 20 000. It was found that the Applicant did not escalate the quote to underwriting even where the excess was R 20 000. As a result, the clients have been quoted with a premium not based on the system generated premium and not based on the clients' risk captured by the agent.

 

18.   This tribunal duly considered the evidence in the record and finds nothing to deviate from the decision taken by the Respondent to debar the Applicant for the following reasons:

 

18.1       Documentary evidence[1] was provided by the Respondent which proves the misconduct by the Applicant as set out above. An extract of policy number: 4003273010, in which the sales agent was the Applicant, shows that the quote and excess was repeatedly entered to decrease the premium until it reached a premium of R 659.40. The initial premium of R 1 800.68 was decreased to R 1 046.36 and then to R 659.40, which was a discount of 75.13%. The excess was initially reflected as R 20 000 and changed to R 0. The conduct of the Applicant in this regard is not only fraudulent, but dishonest as it resulted not only in financial and reputational losses for the Respondent, but it was not in the interest of the clients as they were not given the correct premium based on their required risk.

 

18.2       There is no evidence that the clients made an informed decision regarding their required access and risk as manipulated by the Applicant.

 

18.3       It further appeared for the record that the Applicant admitted that he had the necessary experience and that he accepted that he should have known better as he had a total of 3 years short term insurance experience[2]. He did not adequately explain why he made the changes on the system.

 

18.4       This tribunal was further provided with extracts of policies activated by the Applicant where the indicator reflected as 1 show that there was excess and license manipulation to reduce the premium[3]. The Respondent's evidence shows that the same discrepancies occurred in 93 policies linked to the Applicant. This tribunal regards the extent of the discrepancies and the misconduct of the Applicant as a serious contravention of his duties and responsibilities as a representative. Thus, his debarment should stand.

 

18.5       There is no evidence on the record to rebut the evidence of the Respondent, but denials. The Applicant's contention that he did not receive a fair hearing is without merit. He was provided with an opportunity by management to provide his evidence pack that he failed to do. The case was twice postponed by the chairperson to afford him the opportunity to present his evidence. He has failed to provide any evidence.

 

18.6       The manipulation of the system to provide the clients with lower premiums resulted in more clients taking advantage of the low premium, which was to the financial advantage of the Applicant as he would earn commission and helped him in achieving his sales targets. His (the Applicant's) misconduct in this regard for self-gain was sufficiently serious to impugn his honesty and integrity and thus his debarment should stand.

 

18.7       All other grounds raised by the Applicant in his application for reconsideration relating to the chairperson provided false evidence; that he misled the nature of the hearings; that he withheld key evidence; concerns about the chairperson's integrity and impartiality, that he fabricated scenarios and mispresented evidence are without merit and unsubstantiated. In terms of paragraph 4.4 of the Respondent's Debarment Policy and Procedure a chairperson will be appointed during a verbal FAIS hearing who will be an individual within Discovery who is independent from the Group Compliance function and the business unit or department that the representative belongs to. On the Applicant's own version, the chairperson in this matter was from the banking department and not from the short-term insurance department to whom the Respondent belongs. Thus, the appointment of the chairperson was competent.

 

19.   The Respondent's submissions that the Applicant has contravened and/or failed to comply with the provisions of the FAIS Act and the General Code of Conduct for Authorised FSP's and representatives, and in particularly the character qualities of honesty and integrity stand.

 

20.   For reasons stated above the application is dismissed.

 

F.        ORDER

 

1.        The Applicant's application for reconsideration is dismissed.

 

 

SIGNED on behalf of the Tribunal on this 6^th day of SEPTEMBER 2023.

 

 

ADV SALME MARITZ

For self and on behalf of LTC Harms (Chair)

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