Assessing a candidate with a prior debarment and a judgement
Lerato applies to join Khanya FSP as a representative. Her CV shows a BCom in Risk Management, RE5 passed, and three years' experience at another insurer. Vetting reveals that she was sequestrated 18 months ago and has not been rehabilitated, that a civil judgement of R140,000 is being repaid at R2,000 per month under an agreement, and that she was debarred four years ago by a previous FSP. That debarment letter says she was debarred 'for failing to meet the minimum production target for two consecutive quarters'. Khanya's compliance officer says the debarment is an automatic disqualification and wants to reject her. The sales manager says she is a great producer and wants to appoint her immediately.
1. How should the FSP assess Lerato's honesty and integrity?
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Honesty and integrity is assessed on the whole person, not on a single label.
- The FSP must obtain a full disclosure from Lerato, verify it against the debarment register and other sources, and give her a chance to explain each item.
- There is no finding of dishonesty in the facts. A failure to meet a production target is a performance issue, not evidence of dishonesty.
- The sequestration and the judgement must be explored: what caused them, whether creditors are being paid, and whether there is any concealment or reckless financial behaviour that could expose clients.
- The FSP should record its reasoning and the information it relied on. A conclusion of 'not fit and proper' must be justified and defensible, not simply asserted.
2. How should Lerato's financial soundness be evaluated?
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Financial soundness is about risk to clients, not about wealth.
- Sequestration is a red flag that requires assessment, but it is not an automatic bar to appointment as a representative.
- Relevant factors include whether she is cooperating with the trustee, whether rehabilitation is being pursued, and whether the sequestration arose from circumstances unlikely to recur.
- The judgement being repaid under a written arrangement at R2,000 per month is evidence of willingness to meet obligations, not of unsoundness by itself.
- The FSP must consider whether financial pressure could create a temptation to churn business or misappropriate premiums, and put monitoring in place if it appoints her.
- The decision and its reasons must be documented.
3. What is the effect of the prior debarment, and what process should the FSP follow before deciding?
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The prior debarment is not automatically decisive.
- Debarment must be based on a material breach of the fit-and-proper requirements. Debating a representative for missing a production target is not a valid fit-and-proper ground, so the compliance officer's 'automatic disqualification' view is wrong.
- The FSP should obtain the prior FSP's debarment record and Lerato's version, and consider whether the earlier decision was sound.
- A prior debarment is relevant information, but the current FSP must make its own fit-and-proper assessment.
Process:
- Gather all information, allow Lerato to make representations, and document the assessment against each pillar.
- If the prior debarment appears invalid, the FSP may still appoint her and may raise the record with the FSCA.
- If the FSP declines, it should give reasons; a decision based on an invalid prior debarment alone would be vulnerable to challenge.