In September 2022, the Financial Services Tribunal handed down two decisions reconsidering the debarment of a financial services representative ("FSR").
In both instances, the allegation by the employer, an insurance broker (the Financial Services Provider or "FSP"), was that their employee (the FSR) had, before their resignation, stolen confidential client information and attempted to persuade clients to join them in a new business venture.
In the first instance, Van Heerden & Marais v Unigro Insurance Brokers (Pty) Ltd, the Tribunal found that the FSP had established on the facts that Mrs van Heerden and Mr Marais had stolen confidential information and used it to advance the interests of their prospective new employer. In this case, while still employed by the FSP, the employees had assisted their new employer to sign up existing or prospective clients of the FSP as clients of the new employer by inducing these clients to take out policies through the new employer rather than the FSP.
The Tribunal concluded that, at the very least, they were guilty of a breach of section 13(1)(c) of the Financial Advisory and Intermediary Services Act, 2002 because they had rendered financial services other than in the name of the FSP of which they were representatives, and of breaching a fiduciary duty.
The Tribunal observed:
"One cannot serve two masters, and one may not attempt to do so. To use a bucolic comparison, one may not sow your own fields with your employer's seed"
Accordingly, the Tribunal concluded;
"The public is at risk if an FSR is prepared to filch confidential information or acts on behalf of an FSP (the new employer) without being that person's registered representative."
In the second matter, Turner v GIB Insurance Brokers & the Registrar of Financial Services Providers, the Tribunal found that the evidence presented by GIB Insurance Brokers, that Mr Turner had allegedly stolen confidential information to set up a competing venture, was lacking. In any event, such evidence as there was, had been presented after Mr Turner had already been debarred and could therefore not be taken into account.
The Tribunal held:
"It is further trite that debarment may not be used to stifle competition or to settle labour and other contractual disputes. Finally, it is for the FSP to establish on a balance of probabilities the facts on which it relies.
. . .
There are grounds for suspicion, but suspicion is not enough for a debarment, especially if based on hindsight."
Thus, the Tribunal said that an employee who, whilst still employed by an FSP, filches confidential information of the FSP for the benefit of another FSP (the new employer) or acts on behalf of the new employer without being that employer's registered representative, puts the public at risk which can constitute valid grounds for debarment. However, sufficient evidence establishing such conduct is required.
These principles should be carefully considered by FSPs when an employee leaves for a competitor.
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