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The maximum compensation limit the Ombud for Financial Services (Fais Ombud) can award to consumers and investors for financial prejudice or damage has been raised from R800 000 to R3.5 million.
This is in terms of new rules for the Fais Ombud published by the Ombud Council on Monday.
Fais Ombud Advocate John Simpson welcomed the publication of the rules for his office, which are effective Monday.
Leanne Jackson, chief ombud of the Ombud Council, said on Monday the rules are binding regulatory instruments made under the Financial Sector Regulation Act (FSR Act) and come into operation on the date of publication.
Simpson said the increase in the jurisdictional limit from R800 000 to R3.5 million is the most significant change to the rules.
“Previously, complainants with losses exceeding R800 000 often needed to forgo the excess before this Office could proceed with its investigation.
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“The increase in the Office’s jurisdiction, which has remained unchanged since its inception in 2004, allows it to offer greater assistance to complainants.
“Complaints involving retirement advice, especially post-retirement transactions involving annuities, can often exceed R800 000,” he said.
“Inflationary effects since 2004 have also seen financial planning advice-related complaints increasingly exceed the original R800 000 jurisdictional limit.”
Simpson said his office has resolved complaints for amounts in excess of the R800 000 limit due to the applicable financial services providers agreeing to the Fais Ombud’s Office’s jurisdiction being exceeded.
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He said the Office of the Fais Ombud acknowledges and appreciates the efforts of financial services providers to treat customers fairly in this regard.
Simpson anticipates a possible increase in complaints received and investigated because of the increase in the compensation amount, but is confident his office will meet the challenge.
Jackson said the increase in the compensation amount is necessary to ensure that the compensation the Fais Ombud is empowered to award recognises changes in the value of money and market realities since the limit was first set two decades ago.
She said the outdated previous limit compromised the effectiveness of the ombud system by unreasonably restricting access to free, effective, independent alternative dispute resolution and forcing several customers prejudiced by poor financial advice to resort to expensive formal litigation to seek redress.
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Jackson said the new rules revoke and replace previous rules on proceedings of the Fais Ombud made in 2003 under the Financial Advisory and Intermediary Services Act (Fais Act).
They covered practical procedural matters regarding the operation of the Fais Ombud’s Office.
“Generally, the new Ombud Council Rules serve the same purpose although they update outdated terminology, refine aspects of the FAIS Ombud’s jurisdiction, and effect process improvements based on practical experience,” she said.
Jackson said the new Fais Ombud rules are also somewhat more consistent with the compensation levels available from other financial sector ombud schemes.
Effective from 1 March 2024, the Short-term Insurance and Long-Term Insurance Ombud amalgamated to form a new scheme, the National Financial Ombud Scheme South Africa (NFO), which continues the jurisdiction of each of the four predecessor schemes through four separate divisions of the NFO.
Under this structure, the Banking Division has a maximum compensation limit of R5 million, the Credit Division now also has a maximum limit of R5 million, the Non-Life (Short-term) Insurance Division’s limits are R10 million for buildings insurance and R5 million for other insurance while the Life (Long-term) Insurance Division’s compensation amounts remain uncapped.
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A statement of need, intended operation, and expected impact published with the draft rules said the World Bank – in its diagnostic study titled ‘South Africa: Financial Ombud System Diagnostic’ – recommended that the maximum compensation limit for the Fais Ombud be speedily reviewed.
The bank highlighted that, indexed to the South African Consumer Price Index (CPI), the R800 000 maximum limit would have been equivalent to well over R2 million in 2020.
Other provisions in the new Fais Ombud rules include:
Jackson said the new rules state that for a complaint to be considered by the Fais Ombud, it must relate to a financial service rendered by or on behalf of an authorised provider.
She said the rules oblige the ombud to refer complaints about unauthorised business to the Financial Sector Conduct Authority (FSCA), which has the necessary enforcement and investigative mandate and capacity to consider appropriate action.
“This reinforces the importance of dealing with FAIS-authorised financial advisers, where one of the benefits of doing so is access to the dispute resolution services of the FAIS Ombud,” she said.
Jackson added that the new rule that creates clearer consequences for providers that do not cooperate with the Fais Ombud requires the ombud to advise the FSCA of material contraventions of the rules or persistent or material failure to cooperate with the ombud by a financial services provider or representative.
She said such conduct by financial services providers is inconsistent with a provider’s obligations under the Fais Act, and reporting this conduct to the FSCA will enable the regulator to consider appropriate enforcement action.
Jackson said the rules also grant the Fais Ombud discretion to dispose of a complaint on available facts and information where a party to a complaint fails to respond timeously, or otherwise fails to comply with the rules.
“This gives the Ombud some flexibility to resolve complaints, where appropriate, despite a lack of cooperation from one of the parties,” she said.
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The statement of need, intended operation, and expected impact published with the draft rules said that in regard to oral complaints, the low levels of literacy in South Africa, particularly among the most vulnerable financial customers, mean that a requirement for complaints to be submitted in writing could render ombud schemes inaccessible to these complainants.
Simpson said one of the most important rules that remain is that for a complaint to be justiciable by the Office of the Fais Ombud, the office must be satisfied that the complainant has endeavoured to resolve the complaint with the respondent and that the respondent must have failed to address the complaint satisfactorily within six weeks of its receipt.
He said that if the respondent has not been provided with an opportunity to resolve the complaint, it is first sent to the respondent using the premature complaints handling process.
“This process has resulted in many complaints being resolved within the six-week period without the need for a formal investigation,” he said.
This article was republished from Moneyweb. Read the original here
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