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In September 2022, the Financial Services Tribunal issued two decisions reconsidering the exclusion of a financial services representative (“FSR“).
In both cases, the allegation of the employer, an insurance broker (the financial services provider or “FSP“), was that their employee (the FSR) had, prior to his resignation, stolen confidential customer information and attempted to persuade customers to join them in a new business venture.
In the first place, Van Heerden & Marais v Unigro Insurance Brokers (Pty) Ltd, the Court held that the FSP had established on the basis of the facts that Ms. van Heerden and Mr. Marais had stolen confidential information and had used it to further the interests of their future new employer. In that case, while still employed by the FSP, the employees had assisted their new employer in enrolling existing or potential customers of the FSP as customers of the new employer by inducing those customers to purchase policies through of the new employer rather than the FSP .
The Tribunal found that they were at the very least guilty of breaching Article 13(1)(vs) of the Financial Advisory and Intermediary Services Act, 2002 because they had performed financial services other than on behalf of the FSP of which they were the representatives, and for having breached a fiduciary duty.
The Tribunal observed:
“One cannot serve two masters, and one cannot attempt to do so. To use a bucolic simile, one cannot sow one’s own fields with the seed of one’s employer”
Accordingly, the Tribunal concluded;
“The public is at risk if an FSR is willing to extract confidential information or acts on behalf of an FSP (the new employer) without being that person’s registered representative.”
In the second case, Turner v GIB Insurance Brokers and the Registrar of Financial Services Providers, the Court found that the evidence presented by GIB Insurance Brokers that Mr. Turner stole confidential information to create a competing business was lacking. In any event, the evidence, as it stood, was presented after Mr. Turner had already been disbarred and therefore could not be considered.
The Tribunal held:
“It is further well established that exclusion cannot be used to stifle competition or to settle labor disputes and other contractual disputes. Finally, it is up to the FSP to establish on a balance of probabilities the facts on which it relies.
. . .
There are grounds for suspicion, but suspicion is not sufficient for an exclusion, especially if it is based on hindsight.”
Thus, the Court stated that an employee who, while still employed by a PSF, steals confidential information from the PSF for the benefit of another PSF (the new employer) or acts on behalf of the new employer without being the registered representative of that employer puts the public at risk that may constitute valid grounds for exclusion. However, sufficient evidence establishing such behavior is required.
These principles must be carefully considered by FSPs when an employee leaves for a competitor.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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