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IN THE FINANCIAL SERVICES TRIBUNAL

 

CASE No: FSP 2/2023

 

In the matter between:

 

MARIA MONKWE                                            Applicant

 

and

 

FIRST NATIONAL BANK

A Division of First Rand Bank Limited              Respondent

 

Coram: S Jikela SC (Chair); Adv K. Magano and Mrs P. Moloto-Stofile

 

Appearance for the applicant: Mr W. Mphahlele

 

Appearance for the respondent: Adv L. Minne

 

Date of hearing: 23 June 2023

 

Date of decision: 26 July 2023

 

Summary:  Reconsideration of the debarment in terms of section 230 of FSR - Debarment in terms of section 14 of FAIS Act- fit and proper requirement- duty of the FSPs to debar representatives.

 

 

DECISION

 

 

Introduction and Background Facts

 

 

[1]  This is an application for the reconsideration of a decision taken by the respondent to debar the applicant. This application is made in terms of section 230 of the Financial Sector Regulation Act 9 of 2017 (''the FSRA").

 

 

[2]        The applicant's heads of argument were filed 3 days after the stipulated time. However, the respondent has no issue with this panel condoning the late filing of the applicant's heads. Section 230(2) (b) of the FSR Act confers upon the Tribunal the discretion to allow an application outside the stipulated time. The overriding consideration is the interests of justice, which must be considered on the facts of each case. It is our view that in this case, the interests of justice commands that the late filing of the applicant's heads of argument be condoned.

 

[3]        It is common cause that the charges against the applicant were formulated namely; 3 counts of falsifying of docwnents in terms of paragraph 4.2.6 of the bank's disciplinary code and procedures, in that it was alleged that on 24 December 2020; 14 and 18 May 2021 in her capacity as the respondent's Branch Consultant, the applicant falsified the proof of residence letters by using blank municipality letters obtained from the Greater Diepsloot Municipality to complete the address details for customers, Qhubekani Moyo, Gift Ncube and Thabiso Mohaotsane.

 

[4]        The charges were partly founded on the contention that section 21 of Financial Intelligence Centre Act 28 of 2001("FICA") requires all customers to be identified and verified before a business relationship may be established. In terms of the Act, the bank is required to obtain and verify a minimum, a prospective customer's identity, address and source of funds. An allegation was made by the respondent that the applicant benefitted from the said conduct through embedded value (EV) earned.

 

[5]        Subsequent to the disciplinary enquiry, on 2 November 2021 the applicant was served with a Notice of Summary Dismissal from the service of the respondent with immediate effect, as a result of her being found guilty of contravention of the provisions of the respondent's Disciplinary Code and Procedure.

 

[6]    In 25 April 2022, the respondent issued the applicant with a notice of intention to debar her. The respondent afforded the applicant an opportunity to make representations and provide reasons why she should not be debarred.

 

[7]        In the end, the applicant was found to have breached section 9 (1) (e) and (f) of BN 194 of 2017 which relates to honesty, integrity and good standing. The panel recommended that her personal details be placed on the Banking Council's Register of Employee Dishonesty ("REDS").

 

[8]        On 23 November 2022, the respondent issued a notice of debarment informing the applicant that she had been debarred with immediate effect in accordance with the requirements of section 14 of the Financial Advisory and Intermediary Services Act, 37 of2002 ("FAIS Act"), as amended by the FSR Act. The reasons for the debarment are stated in the debarment notice. However, we find it necessary to repeat the basis upon which the decision to debar the applicant was made, namely

 

"l 0.1  The applicant's actions were seen as dishonest since the intention was to manipulate the process to make a sale and to unduly earn commission.

10.2           She admitted to the fact that customers came to the branch with blank proof of residence that she assisted them to complete.

10.3           The applicant failed to conduct herself in a manner that was ethical and trustworthy.

10.4           There was wilful intent not to follow the KYC guidelines and processes when

verifying addresses resulting in her benefitting financially.

10.5           This was seen as an indirect violation of the integrity and honesty principles contained in the FAJS Act.

10.6           Her conduct was considered to be serious enough to affect her fit and proper status.

10.7   Furthermore, the applicant was found not to have acted in good faith and in the best interests of the business.

10.8         The applicant was first appointed in the role of FAJS representative for the FSP on 13 July 2017 and an industry representative since 16 March 2015.

10.9         Training in terms of the FAIS fit and proper requirements was concluded with the applicant."

 

[9]    Before us, the applicant applies for a reconsideration of that decision under section 230 of the FSRA. The respondent opposes this application.

 

Grounds for the Reconsideration Application

 

[10]     The applicant avers that the respondent in team meetings that were held with its representatives, they were instructed to utilise such blank municipal letters. Therefore, the use of blank municipal letters was common practice at the Diepsloot branch and had she failed to act in terms of the respondent's instruction, she would have been charged for insubordination.

 

[11]     The first ground appears to be what the applicant calls "prevailing practice". Therefore, the question that arises is whether the applicant breached the provisions of section 9 (3) of the Board Notice. In terms of that section, once it is established that a representative prima facie lacks the characteristics of honesty and integrity, regard must then be had to the demands of section 9.3. The considerations in section 9.3 therefore, may rebut the presumption that a representative is not fit and proper.

 

[12]  The applicant states that the respondent in its finding that the applicant was in breach of section 9 (3) of the BN of 2017, it applied the section without carefully considering the provisions thereof namely, that in assessing one's conduct regarding the requirements of section 8 (1), the following must be considered:

 

"(a) Seriousness of a person's conduct whether by commission or omission, or behaviour and surrounding circumstances to that conduct or behaviour could have a negative impact on a person's compliance with section 8(1);

(b)       The relevance of such conduct or behaviour that has or could potentially have a negative impact on the persons' compliance with section 8 (1), to the duties that are or are to be performed and the responsibilities that are to be assumed by that person;

(c)        The passage of time since the occurrence of the conduct or behaviour that had a negative impact on the persons' compliance with section 8(1)."

 

[13]  Section 9 (3) is aligned with the proposition that rules must be applied consistently and that decisions to debar must align with facts on the ground. Thus, the applicant asserts that the respondent failed to consider the surrounding circumstances which caused the applicant to act as she did.

 

[14]  The applicant asserts further in this application that at no stage did she deny the allegations, which resulted in her dismissal and her disbarment. On 7 September 2021 when she was served with a notice of intention to suspend her from work, she admitted the allegations and explained the circumstances surrounding the use of blank letters from the municipality.

 

[15]  In essence, the applicant asserts that the Diepsloot branch had a standing practice where blank letters form the Greater Diepsloot Municipality were used by the officials of the branch to confirm or to serve as proof of address for customers and prospective customers. Thus, she was not aware that completing such municipal letters was in breach of the provisions of FICA as the blank municipal letters were in plain sight and always available at the branch. This was the practice since 2015 when she joined the branch. All the branch managers at Diepsloot were aware of this procedure.

 

[16]  The applicant believes that the respondent's complaint against her of breach of the provisions of FICA was prompted by the grievance that she had lodged with the respondent's head office against a branch manager.

 

The Second Ground for Reconsideration: The Alleged CCMA Settlement Agreement

 

[17]  Subsequent to the termination of the applicant's employment with the respondent, the applicant lodged a grievance with the CCMA. We do not know the details of the CCMA dispute however, of significance is the CCMA

 

Notice of Withdrawal relied upon by the applicant to support the proposition that the debarment was somehow procedurally flawed, as the debarment panel did not take into account the "Settlement agreement".

 

[18]    The applicant referred us to the CCMA notice of withdrawal dated 20 December 2021. This notice is in respect of a dispute between the applicant and the respondent. The notice of withdrawal records that the applicant withdrew the application to the CCMA against the respondent on the basis that "the respondent will remove the applicant's name from REDS. The respondent will also change the reasons for termination of employment to be that of voluntary resignation". The notice records further that the applicant confirms that she signed the notice of withdrawal at free will.

 

[19]    Worth mentioning is that the notice of withdrawal bears the signature of the applicant and that of the Commissioner assigned to the dispute and the Senior Commissioner of the CCMA. Nowhere in the notice of withdrawal did the respondent sign or bind itself with the contents of the notice of withdrawal. That being said, we conclude that the CCMA withdrawal notice does not constitute a settlement agreement as alleged by the applicant. Thus, it is highly irrelevant to the determination and outcome of this application.

 

The Applicant's Supplementary Grounds for Reconsideration

 

[20]    On 23 February 2023, the applicant filed supplementary grounds for reconsideration. She deals extensively with the evidence of Mr. J Masemole, a member of the Greater Diepsloot Municipality, who testified at the disciplinary hearing in support of the applicant's assertion that the respondent has for many years been using the blank municipal letters. According to the applicant, Mr. Masemole testified that at no point did the respondent reject the said municipal letters. Neither did it approach the municipality to verify addresses of prospective clients.

 

[21]    With regard to the respondent's Know Your Customer policy ("KYC"), the applicant asserts that the respondent has been approving the bank accounts that were being opened using the impugned municipality letters. Regular audits have been conducted over the years without any adverse findings.

 

[22]    Other officials of the respondent have not been disciplined for using the blank municipal letters. Therefore, it is important for the respondent to be consistent in its approach as that is paramount to the principle of fairness and lawfulness, so she contends.

 

The Parties' Respective Submissions

 

Applicant's Submissions

 

[23]    Mr. Mphahlele of Mjiyako Mphahlele Inc. representing the applicant emphasized that there was undisputed evidence of Mr. Masemole who confirmed that the Greater Diepsloot Municipality issued the letters to the bank and that was common practice at the said branch. The implication thereof is that most representatives of the respondent at the branch made use of the said municipal letters. To that end, Mr. Mphahlele relied in the decision in Matshoba v Fry Metals (1983) 4 JLJ 107 (JC) where it was held that in instances where the employer has not previously taken action against employees on a particular offence, their dismissal was unfair. This is because inconsistent application of the rule causes doubts about the status of the rule.

 

[24]    The reliance in Matshoba does not advance the applicant's case. This is so because the respondent in its notice of debarment, at paragraph 12 thereof, states that there is no merit in the allegation of inconsistency. When the respondent became aware of other staff members implicated in the same or similar incidents, it investigated such allegations and the implicated staff members were disciplined and dismissed from employment with the respondent.

 

[25]    A further submission was that the respondent failed to consider the surrounding circumstances of the applicant as it ought to have done so in terms of section 9 (3) of BN of 2017. According to Mr. Mphahlele, the applicant in completing the information pertaining to the addresses of the potential clients of the bank, she would have the client in her presence and she would obtain the details relating to the client's residence and other information from the client.

 

[26]    At the hearing, the matter turned on two issues namely;

 

(a)        In light of the admission made by the applicant on the papers before us that at no stage did she deny the allegations, which resulted in her dismissal and subsequent debarment, whether it was proper of the applicant, on the last minute to retract the admission that she committed forgery and;

 

(b)        Whether the points put forward by her constitute grounds for reconsideration.

 

[27]    To this, Mr. Mphahlele submitted that no prejudice would be suffered by the respondent as a result of the late retraction of the admission. Further, that the first point of contention relating to failure to consider the provisions of section 9 (3) of BN of 2017 constitutes a valid ground for the reconsideration. We cannot agree that no prejudice will be suffered by the respondent.

 

[28]    Notwithstanding the fact that the applicant was trained in FAIS and FICA regulations, it was submitted that the applicant understood the "common practice" to have been developed in order to assist customers that had no residential addresses to open the bank accounts.

 

[29]    Mr. Mphahlele confirmed that the procedure adopted by the applicant made no allowance for any form of verification of the details presented to the bank by the potential client.

 

[30]    Insofar as whether the applicant is a fit and proper person in terms of the provisions of FAIS Act, it was submitted that the applicant is still a fit and proper person because she did not deny the allegations against her thus, she displayed integrity.

 

[31]    With regard to the assertion by the respondent that the applicant benefitted from the impugned procedure of relying on the blank municipal letters, Mr. Mphahlele submitted that the applicant benefitted from a scheme that she did not create.

 

Respondent's Submissions

 

[32]    For what it's worth, the respondent shifted from its original position that was articulated at the disciplinary enquiry that the applicant committed Fraud or forged the blank municipal letters that were issued for the purpose of confirming customers' addresses. Mr. Minne, counsel for the respondent conceded that the evidence obtained pursuant to the bank's investigation was that the applicant completed the blank municipal letters and failed to verify the information and/or addresses of the bank's customers.

 

[33]    The respondent submitted that the applicant breached both the requirement in terms of FNB's Know Your Client ("KYC") requirement and the bank's requirement in terms of section 21 of FICA.

 

[34]    The chairperson of the disciplinary enquiry took the view that the applicant was well aware of the requisite FICA requirements. She had received training on such requirements and ought to have appreciated that there was no point asking a client for FICA if she was going to write the address down for them. Moreover, the conduct of the applicant caused considerable financial and reputational risk to the respondent including that the bank stood to lose millions by way of fines for failing to comply with FICA standards.

 

[35]    It was further submitted that the importance of the system of industry self-regulation crafted by the FAIS Act has received longstanding judicial consideration. Recently, in the case of Associated Portfolio Solutions (Pty) Ltd and Another v Basson and Others [2020] 3 all SA 305 (SCA) at para 21, the SCA reaffirmed the "close supervisory responsibility" borne by FSP's with regard to their representatives.

 

[36]    The role of the said self-regulatory system, and as such the role of an authorised FSP such as the respondent, is therefore to ensure that their representatives are "fit and proper persons to be entrusted with providing financial advice to the investing public." This role is specifically realised in the statutory duty on authorised FSP's to debar representatives who no longer meet the requirements and standards specified in the FAIS Act and other relevant financial services laws. In this regard, the respondent relies in Financial Services Board v Barthram and Another 2018 (1) SA 139 (SCA) at para 15, where the SCA emphasized the peremptory nature of an FSP's duty to debar a representative who no longer meets the fit and proper requirements. The SCA in that decision made clear that should the FSP fail to comply with this duty, the FSP itself is liable to sanction. Harms J relied upon the principle in Barthram in his decision in Singh v Marsh Proprietary Limited and Another, case number FSP 57/2022 handed down in April 2023. In Singh, this Tribunal followed the approach set out in Bartham and made clear the importance ofFSP's upholding this statutory duty, in the course of dismissing an application for reconsideration.

 

[37]    A further submission made on behalf of the respondent was that the Board Notice stipulates further conduct or circumstances which prima facie evidence that a person is dishonest, lacks integrity and is not of good standing. This includes when a person has been removed from an office of trust for misrepresentation, fraud, dishonesty, and the breach of a fiduciary duty, along with the breach of a fiduciary duty more generally. A further ground is when a person has demonstrated a lack of readiness and willingness to comply with legal regulations or professional requirements and standards.

 

[38]    According to the respondent, the applicant misrepresented the KYC status of FNB's clients and breached her fiduciary duties by filling in, amending, or completing the proof of residence letters with absolutely no attempt to verify whether the information written down was correct.

 

The Relevant Legal Principles

 

[39]    The provisions of the FAIS Act govern the debarment of FSP's representatives and key individuals. The SCA in Associated Portfolio Solutions and Ano v Basson and Others [2020] 3 All SA 305 (SCA) helpfully summarised the most relevant provisions of the Act as follows:

 

"[21] In terms of section 7, the FSP may not provide financial services unless it is licensed in terms of section 8. Neither may a representative of an FSP do so unless he or she has been appointed as such by an 'authorised' or licensed FSP in terms of section 13. FSP 's are required to keep registers of their representatives and key individuals.

 

[22] The Act decrees a close supervisory responsibility by FSPs over their representatives. In terms of section 13(1)(b)(i), no person may act as a representative of an authorised FSP unless, prior to the rendering of a financial service, he or she provides to clients' confirmation certified by the FSP, that the FSP accepts responsibility for the activities of the representative performed within the scope of or within the course of implementing a service contract with the FSP. Section 13(iA) prescribes that a representative must meet the 'fit andproper' requirement. In terms of section 13(2) (a) an authorised FSP must, at all times, be satisfied that its representatives and key individuals are competent to act and that they comply with the fit and proper requirement. FSPs are charged with the duty to take reasonable steps to ensure that representatives comply with any applicable code of conduct and applicable laws in the conduct of business.

 

[23]  Under section 14 of the FAJS, the FSPs bear the duty to debar representatives, who do not meet the fit and proper requirement. Section 14(J)(a) provides that an FSP must debar its representative and key individual if satisfied that he or she (the representative and key individual) does not meet, or no longer complies with the requirements set in section 13(2)(a), or has contravened any provision of the Act in a material way.

 

[24] Once debarment has been effected, the FSP must immediately withdraw any authority that may still exist for the person to act on its behalf, remove the name of the debarred person from the register of representatives, immediately take steps to ensure that the debarment does not prejudice the interests of clients, notify the FSB of the debarment within five days, and provide the authority with the reasons for the disbarment. A (previously) debarred person may only carry on business or render financial services to clients or act as a representative or a key individual of an authorised provider if he or she complies with the requirement set in section 13(1)(b)(ii) of the FAIS Act. "

 

[40]    Section 14 (1) of the FAIS Act, 2002 provides that:

 

"An authorized financial services provider must debar a person from rendering financial services who is or was, as the case may be a representative of the financial services provider if the financial services provider is satisfied on the basis of available facts and information that the person does not meet, or no longer complies with, the requirements referred to in section 13 (2) (a) of the FAIS Act, 2002 or have contravened or failed to comply with any provisions of this Act in a material manner."

 

[41]    Section 14 (2) (a) and (b) of the FAIS Act, 2002 states:

 

"Before a provider effects a debarment in terms of sub-section (1), the provider must ensure that the debarment process is lawful, reasonable and procedurally fair."

 

Analysis and Conclusions

 

[42]    Applying all the above principles to the facts of this case, we find that the applicant's transgressions were serious, particularly when viewed in their totality.

 

[43]    We consider the applicant's assertion that she has a university qualification in banking. She received training on the importance of complying with the requirements of FICA and FAIS Acts. Further, we have considered the respondent's debarment policy and the Customer Due Diligence Standard relating to guidance on address verification, documents and/or records. Clause 12.l of FNB's Customer Due Diligence Standard deals with the acceptable documentation for address verification. The provisions thereof are peremptory on the representatives of the respondent.

 

[44]    Further, we take cognisance of the Articles of Agreement made and entered into by and between the respondent and the applicant. More particularly clause 3.2 thereof where the applicant undertook to comply with all the rules, regulations and procedures of the bank. The applicant agreed at all times to obey all legitimate, fair orders and instructions and duly to account for all monies, securities, vouchers, bills, cheques, title deeds and other instruments and documents which shall come into her possession as an employee of the bank.

 

[45]    She further agreed to conduct herself in such a manner as shall not injure or adversely affect the reputation of the bank.

 

[46]    At the least, the evidence before us demonstrates that the applicant's conduct amounts to misrepresentation, dishonesty, and breach of fiduciary duty or business contact. That the applicant lacked willingness to comply with the mandatory statutory, regulatory and/or professional requirements and standards applicable to her as an agent of the respondent.

 

[47]    The applicant throughout the processes leading up to her debarment has not for once produced evidence to support her assertion that the use of the blank municipal letters was an instruction issued by the respondent. We consider this in light of the trite principle that it is incumbent upon a person against whom such finding and conclusions are made to demonstrate, concretely, that they are not justified.

 

[48]    We align ourselves with the finding ofthis Tribunal per Harms Jin Michelle Hollenbach v The Financial Sector Conduct Authority (A7/2020) at para 32 where he stated that the grounds provided for in section 9 (3) of BN of 2017 are interrelated and that it is irrational to discuss or consider them individually. The applicant appears to have considered these grounds fragmentary.

 

[49]    1n our view, and when exercising value judgment, we are persuaded that, in all the circumstances, debarment is appropriate. Even if for a moment we were to accept that the use of the said municipal letters was discussed at meetings held by the branch Managers with the applicant, that alone does not prove that an "instruction" was issued by the respondent as alleged. In any event, the applicant was obliged to obey legitimate and lawful instructions. Certainly, the applicant's conduct was in contravention of the applicable laws in the banking sector.

 

[50]    Therefore, we find that the integrity and trustworthiness of the applicant has been tainted. Thus, we conclude that there are no valid reasons why the debarment decision shall be overturned.

 

In the result, the following order is issued:

 

[51]    Condonation for the late filing of the applicant's heads of argument is granted.

 

[52]    The application to set aside the debarment of the applicant is dismissed.

 

 

Signed on behalf of the Tribunal

 

 

S. Jikela SC

 

With panel members:

Adv K. Magano and Mrs P Moloto-Stofile

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