From CompliNEWS | Financial Service Intelligence Watch
Mahomed Balil Ismail v Wesbank (caution against employers using labour disputes to debar FSP representatives)
Financial Services Tribunal (‘FST’ or ‘Tribunal’)
The following matter was handed down by the Financial Services Tribunal on 25 January 2024:
• Mahomed Balil Ismail (Applicant) and Wesbank a division of FirstRand Bank Limited (Respondent) – (case number: FSP23/2023)
Fast facts
Reconsideration application – Debarment for dishonesty where FSP was unaware of incorrect FSP licence number reflected in record of advice documentation – Caution against employers using labour disputes to debar FSP representatives.
Summary
Background
In 2018, Mr Ismail, employed by Wesbank, was seconded to Tom Campher Motors in Aukland Park (‘the dealership’), as a Financial and Insurance Marketer (F&I’s) to handle the finance and insurance aspects for customers.
In 2022, Mr Ismail was disciplinarily charged for refusing to execute a legitimate, fair instruction from a superior, in that he was notified on 23 September 2021 that Wesbank was embarking on an exercise to ensure that all its F&I’s needed to be dually mandated if they were selling dealer value-added products, when it was discovered that the dealership’s FAIS licence had lapsed on 7 September 2011, Mr Ismail was advised to stop selling dealer value-added products with immediate effect, but it was found that Mr Ismail continued to sell value-added products up until February 2022.
Mr Ismail was also charged with dishonesty – it being alleged that he dishonestly continued to sign the Dealer Record of Advice (ROA) reflecting Wesbank’s FSP number, and he used Wesbank’s FSP number to facilitate the dealer products even though Wesbank was not the product owner. It was further contended that Mr Ismail was conducting sales, giving advice to clients and produced ROAs signed by him, and by so doing so, he inadvertently enabled the dealership to represent itself as an FSP where their FSP licence was no longer valid.
Mr Ismail was found guilty of all the charges and he was dismissed. After his dismissal, he was debarred. The debarment letter reflected the reasons for his debarment as having been found guilty of all charges in the disciplinary hearing and as a result that Mr Ismail no longer complied with the fit and proper requirements set out in the Determination of Fit and Proper Requirements for Financial Services Providers (Board Notice 194 of 2017), in that he no longer met the requirements of honesty, integrity and good standing.
After his debarment on 4 April 2023 the parties reached a settlement agreement on 6 June 2023 at the CCMA, whereby they agreed, amongst other things, that Wesbank would remove Mr Ismail’s name from the REDS (register of dishonest employees) database, and Wesbank would withdraw its notice of intention to debar Mr Ismail dated 29 August 2022. Wesbank, through its legal department, confirmed that Wesbank was withdrawing the notice of intention to debar and that Wesbank would not be opposing Mr Ismail’s reconsideration application. Mr Ismail later applied for reconsideration of the debarment decision.
The issue
Whether Mr Ismail’s debarment was justified.
Facts of the matter
In 2018, Mr Ismail, employed by Wesbank, was seconded to Tom Campher Motors in Aukland Park, a Volvo dealership (‘the dealership’). He was placed on the dealership’s floor by Wesbank as a Financial and Insurance Marketer (F&I’s) to handle the finance and insurance aspects for customers. Mr Ismail was responsible for:
- validation of documentation received from clients
- confirming customer income and affordability
- KYC (‘know your client’) loading
- providing final approval to invoice Wesbank and to ensure pay-out by Wesbank to the dealership for deals concluded.
Mr Ismail was instructed by Wesbank’s compliance department, represented by its compliance manager that he could facilitate the sale of value-added products but that he could not give financial advice. He was further instructed by the compliance manager and the area sales manager of Wesbank to assist Wesbank and the dealership to expedite the recovery of the latter’s FSP licence. Later Wesbank instructed Mr Ismail to ensure that the dealership could operate under the FSP licence of the Independent Dealer Association (IDA).
During February 2022 an existing customer of the dealership traded in a vehicle and purchased a new one. The customer then instructed Mr Ismail to add the same value-added products on the new vehicle which had previously been added on the old vehicle to be traded. On 27 June 2022 a charge sheet was drafted against Mr Ismail wherein he was charged, in relation to the transaction for:
- Refusing to execute a legitimate, fair instruction from a superior – contrary to Wesbank’s Disciplinary Code (Charge 1), and
- Dishonesty – contrary to Wesbank’s Disciplinary Code (Charge 2).
In respect of charge 1, Wesbank alleged that:
- Mr Ismail was notified on 23 September 2021 that Wesbank was embarking on an exercise to ensure that all its F&I’s (Financial and Insurance Marketers) needed to be dually mandated if they were selling dealer value added products. A recording of the initial meeting was also shared with Mr Ismail.
- Mr Ismail was part of the MS Teams Meeting that discussed the risks and issues that would arise for non-compliance.
- After Mr Ismail had supplied the required documents, it was discovered that the dealership’s FAIS licence had lapsed on7 September 2011.
- Mr Ismail was then advised to stop selling dealer value-added products with immediate effect.
- When Wesbank’s Monitoring Centre of Excellence conducted a monitoring on 8 March 2022, it was found that Mr Ismail continued to sell value-added products up until February 2022.
In support of charge 2 Wesbank alleged that:
- Mr Ismail dishonestly continued to sign the Dealer Record of Advice (ROA) reflecting Wesbank’s FSP number.
- He used Wesbank’s FSP number to facilitate the dealer products even though Wesbank was not the product owner.
- Mr Ismail, the dealer salesperson, was conducting sales, giving advice to clients and produced ROAs signed by him, and by so doing so, he inadvertently enabled the dealership to represent itself as an FSP where their FSP licence was no longer valid.
- There was a concern that commission had been paid to the dealership from the insurance underwriters, that the dealership in turn paid commission to the F&I’s whilst it was not a licensed FSP, and this activity had been enabled by the use of Wesbank’s FSP licence number possibly in the dealership’s agreements with the respective insurance underwriters.
During Mr Ismail’s disciplinary hearing two witnesses were called by Wesbank. The compliance manager, Wesbank’s FAIS compliance administrator, confirmed that an exercise was conducted to ensure that Wesbank’s FAIS F&I’s were dually mandated at their dealerships. She also confirmed that she had informed Mr Ismail that his dealer licence had lapsed and that he was requested via email to stop selling dealer value-added products until the dealership’s FSP licence was renewed. Mr Ismail could sell WesBank value-added products as was mandated by Wesbank around September 2022.
Mr Manning (‘Manning’), a regulatory and compliance analyst within Wesbank’s monitoring centre of excellence, testified that in March 2022 Wesbank’s monitoring centre of excellence undertook a monitoring exercise where it was found that the dealership’s value-added products had been sold by the F&I as recently as 11 February 2022. Upon further inspection it was found that the FSP licence number reflected on the dealership’s record of advice was that of Wesbank and that an incorrect record of advice was being used and handed to its customers. It was required that value-added products sold by Wesbank be subjected to an agreement with the value-added product provider.
Because the dealership’s record of advice reflected Wesbank’s licence number, there was a concern that there was no agreement between the value-added products providers (the dealership in this instance) and Wesbank.
According to Manning, dealership salespersons who were not mandated FAIS representatives and who were not working under supervision, provided advice to clients and were not subject to oversight. Whether advice provided by these salespersons was factual is unknown and any complaints which might stem from this advice might negatively impact the reputation of Wesbank in the future with the client and providers.
Mr Ismail was found guilty of all the charges, and on 13 July 2022 Wesbank’s review panel found that Mr Ismail was guilty of the charge of refusing to execute a legitimate, fair instruction from a superior in that he was notified on 23 September 2021 that Wesbank was embarking on an exercise to ensure that all Wesbank F&I’s needed to be dually mandated if they were selling dealer value-added products (VAPS). It was found that even after being advised to stop the sale of dealer value-added products (VAPS), Mr Ismail continued to sell dealer value-added products until February 2022.
As regards charge 2, Mr Ismail was found to have acted dishonestly in that:
- He continued to sign the Dealer Record of Advice (ROA) which reflected Wesbank’s FSP number.
- He was using Wesbank’s FSP number to facilitate the dealer products even though Wesbank was not the product owner.
- It was found that Mr Ismail was conducting sales, giving advice to clients and produced Dealer Record of Advice (ROA) signed by him.
- By doing so Mr Ismail inadvertently enabled the dealership to represent itself as an FSP where in fact its FSP licence was no longer valid.
- There was concern that a commission was paid over to the dealership from the insurance underwriters and that Tom Campher Motors had in turn paid over commission to the F&I’s without being a licensed FSP and that this activity had been enabled by the use of Wesbank’s FSP licence number possibly in the dealership agreement with the respective insurance underwriters.
On 26 July 2022 Wesbank issued to Mr Ismail a notice of summary dismissal. Mr Ismail appealed the decision on 2 August 2022 and on 12 August 2022 his appeal was dismissed. Mr Ismail was debarred and was notified of the debarment in a letter dated 4 April 2023. The letter reflected the reasons for his debarment as having been found guilty of all charges in the disciplinary hearing and as a result that Mr Ismail no longer complied with the fit and proper requirements set out in the Determination of Fit and Proper Requirements for Financial Services Providers (Board Notice 194 of 2017), in that he no longer met the requirements of honesty, integrity and good standing.
After his debarment on 4 April 2023 the parties reached a settlement agreement on 6 June 2023 at the CCMA, whereby they agreed, amongst other things, that:
- Wesbank would remove Mr Ismail’s name from the REDS (register of dishonest employees) database by 13 June 2023, and
- Wesbank would withdraw its notice of intention to debar Mr Ismail dated 29 August 2022.
Wesbank, through its legal department, confirmed that Wesbank was withdrawing the notice of intention to debar and that Wesbank would not be opposing Mr Ismail’s reconsideration application.
Mr Ismail later applied for reconsideration of the debarment decision.
In response to charge 1, for refusing to execute a legitimate instruction from a superior by continuing to sell value-added products until February 2022, Mr Ismail submitted in his application for reconsideration that a particular repeat customer of the dealership traded a vehicle and purchased a new one. The customer then instructed the salesperson that he wanted the same dealer value-added products he had applied to the traded vehicle. Mr Ismail, on instruction of the salesperson, merely added to products and was neither requested nor did he give advice to the customer.
- For his debarment, Wesbank did not rely on Charge 1 (non-compliance with an instruction) but converted same to a dishonesty finding post dismissal without due process. The charge of not meeting and/or not complying with the requirements of s 13(2) of the FAIS Act, specifically, the Fit and Proper requirement of Honesty and Integrity, was never at the heart of his disciplinary hearing which led to his subsequent debarment.
- In response to the charge of dishonesty (for continuing to sign the dealership’s record of advice reflecting Wesbank’s FSP number), Mr Ismail avers that he was not aware that the FSP number reflecting in the dealer’s record of advice document was that of WesBank and not that of the dealership. He contended that he merely facilitated the administration process and at no point did he make any recommendations on products to customers or offer advice. The salesperson would merely provide him with the information of the customers and their election concerning the value-added products and he would administer the process by finalising the documentation and forward it to Wesbank.
Findings
The FST considered:
- Mr Ismail has been debarred because of the decision taken on 3 April 2023. Therefore, the settlement agreement entered between the parties at the CCMA on 6 June 2023 for Wesbank to withdraw its notice of intention to debar Mr Ismail dated 29 August 2022 has been overtaken by events (the debarment). The Tribunal must determine, irrespective of a settlement agreement, whether Mr Ismail’s debarment was procedurally and substantively fair.
- Concerning procedural fairness, Mr Ismail was charged with refusing to execute a legitimate, fair instruction from a superior under Wesbank’s Disciplinary Code and found guilty of the charge (charge 1).
- However, during the debarment proceedings the first charge was no longer about refusing to execute a legitimate, fair instruction from a superior, but instead it was altered to ‘Do not meet and/or not comply with the requirements of section 13(2) of the FAIS Act, specifically, the Fit and Proper requirement of Honesty and Integrity … because you are dishonest.’
- During his disciplinary hearing, Mr Ismail was never called upon to answer to a charge of not meeting and/or not complying with the requirements of section 13(2) of the FAIS Act, specifically, the Fit and Proper requirement of Honesty and Integrity which carried a possible sanction of a debarment. He was charged with a lesser offence of refusing to execute a legitimate, fair instruction from a superior which was an exclusively labour dispute and had nothing to do with his integrity and fit and proper requirements.
- The debarment decision was a consequence of a charge of not meeting and/or not complying with the requirements of section 13(2) of the FAIS Act.
- The debarment process is a distinct statutory process from an internal disciplinary process and Wesbank’s notice of intention to debar received on 29 August 2022 marked the commencement of the debarment process. Therefore, the alteration or change of the ground to be based on section 13(2) of the FAIS Act, is of no consequence.
- Mr Ismail submitted an application to submit additional documents – a 100-page bundle of documents which includes a transcript of the initial disciplinary hearing. Wesbank did not oppose the admission of the additional evidence.
- Wesbank in its ruling on the Findings and Sanction of the disciplinary hearing concluded that Mr Ismail was responsible for validation of documentation received from clients, confirming customer income and affordability, KYC/loading, providing a final approval to invoice the bank and to ensure pay-out to the dealership for deals concluded.
- Mr Ismail had no direct contact with the customers.
The FST held:
- It is bemusing that the parties on 6 June 2023 at the CCMA had agreed, amongst other things, that Wesbank would withdraw its notice of intention to debar Mr Ismail dated 29 August 2022 – notwithstanding that Wesbank had already debarred Mr Ismail on 3 April 2023.
- It is disingenuous that Wesbank would agree to withdraw its notice of intention to debar Mr Ismail dated 29 August 2022 only to debar him on 3 April 2023.
- There is a paradox in Wesbank’s case in that on the one hand it agreed to remove Mr Ismail’s name from the REDS (register of dishonest employees) database by 13 June 2023 and yet debarred him for non-adherence to the principle of honesty, integrity, and good standing.
- Mr Ismail’s evidence that he was neither requested nor did he give advice to the customer was not challenged and instead Wesbank elected a ‘stand by the ruling’ approach.
- Mr Ismail’s unchallenged version that he simply printed the record of advice from the Signo system, which remained intact and was not altered in any way by him, is accepted. The ROA was an automated document, and Mr Ismail could not alter it (which still reflected Wesbank’s FSP number), and he was not permitted to change the ROA.
- Mr Ismail was debarred because of a single transaction which occurred on 11 February 2022. There was no element of dishonesty when Mr Ismail assisted a returning customer to sign the Dealer ROA – printed from the Signio system, and reflecting Wesbank’s FSP number. Mr Ismail had no authority to change the ROA, and was he was not aware that it was not the dealership’s FSP number.
- The second charge of dishonesty proffered against Mr Ismail is contradictory in that it states that he inadvertently enabled the dealership to represent itself as a FSP.
- Inadvertently means without intention or accidentally.
- It therefore cannot be correct that Mr Ismail acted dishonestly when neither he, nor Wesbank, was aware that the dealership’s FSP licence had lapsed nor that the FSP licence reflected in the documentation was that of Wesbank and not the dealership.
- This is one of the many cases where employers use labour disputes to debar FSP representatives.
- Debarment proceedings should not be used by FSP’s to satisfy contractual or other grievances, and should not be used for ulterior purposes. FSP’s may, subject to contract, terminate an agreement with the representative and key individual without debarring them, where the reason for the termination of the contract does not constitute grounds for debarment.
- The parties reached a settlement agreement on 6 June 2023 at the CCMA, whereby they agreed that Wesbank would remove Mr Ismail’s name from the REDS (register of dishonest employees) database by 13 June 2023 and Wesbank would withdraw its notice of intention to debar Mr Ismail dated 29 August 2022.
- It is clear from the settlement agreement that the debarment proceedings were unnecessary and should not have been instituted against Mr Ismail in the first place.
- The Tribunal is not satisfied that debarment was justified.
Conclusion and Order
The application for admission of further evidence is granted. The application for reconsideration is granted and Mr Ismail’s debarment is set aside.
The law
- Financial Advisory and Intermediary Services Act 37 of 2002 – ss 13(2), 14
- Determination of Fit and Proper Requirements for Financial Services Providers (Board Notice 194 of 2017)
- Guidance Notice 1 of 2019
- Financial Sector Regulation Act 9 of 2017 – s 230.