FAIS OMBUD more than quadruples determinations against errant FSPs

Noluntu Bam

FAIS OMBUD rolls up her sleeves and more than quadruples determinations against errant financial services providers, reimbursing complainants to the tune of almost R35 million

The number of determinations made by the office of the Financial Advisory and Intermediary Services (FAIS) Ombudsman has increased dramatically by 333 percent from 21 determinations in 2009/2010 to 91 determinations for the 2010/2011 financial year, resulting in R34.78 million being awarded to complainants in the past year.

The number of complaints received by the office of FAIS Ombudsman, Noluntu Bam, increased marginally by just three percent from 7 647 complaints in 2009/2010 to 7944 in 2010/2011 but Bam’s office has made significant progress in terms of tackling complaints. At the launch of the 2010/2011 FAIS Ombud’s annual report this week, Bam revealed that her office has succeeded in resolving more than 60 percent of complaints received within a 9-month period and has reduced the time taken to acknowledge receipt of a complaint from one month to just seven days.

However, Bam pointed out that some cases, which she refers to as “outliers” take longer than nine months to resolve. She attributed delays in resolving these cases to:

• More than one state agency being interested in the complaint and, perhaps, doing work that will aid the FAIS Ombud’s investigation but that brings about a delay in the interim;
• The possibility that the financial service provider or product provider is facing some legal impediment, such as curatorship proceedings or an application for liquidation;
• The financial services provider having disappeared, which would require the FAIS ombudsman’s office to trace them;
• Financial services providers having asked for extensions because they need to source legal assistance due to the complexity of the complaint;
• Financial services providers having asked for an extension, citing circumstances beyond their control;
• The complainant having asked for an extension of time.

“We are still receiving complaints which present challenges due to incomplete information. For example, where a policy number is provided, it is possible for our office to seek help from the financial services provider to contact complainants. However, complaints that arrive without a policy number, telephone number or address are unfortunately, not likely to be taken further as there is not much we can do,” she says.

Bam says most complaints seemed to relate to money lost in property syndication vehicles and other phoney schemes. Referring to the final report of the Commission of Inquiry into the Masterbond debacle in 2001, Bam said yet again, vast sums of money were being stolen by “incompetent and astute directors of companies playing fast and loose with investors money while deceiving investors – obfuscating facts on one hand and enriching themselves with the other”. She noted that judging from the volumes and the pace of complaints being received by her office, the current year will be no different.

Bam says as directors of phoney schemes finance their luxury lifestyles, companies are bled dry of resources and eventually go into liquidation. “These occurrences do not bode well for South Africa’s efforts to build and maintain financial stability,” she says.

She also queried the fact that certain directors’ names or people said to have played an influential role in these fraudulent schemes seem to appear in complaints on a regular basis. “A point worth mentioning is that in all these collapsed schemes, no indication exists that any one individual involved in the theft of investors’ funds is about to face prosecution. I have to also wonder what role consumers are playing in their own protection. The media regularly carry warnings to consumers about “shoddy” investments but people are continuously lured by false promises of high returns and don’t do the homework of checking that the investment is a sound one,” she says.

Bam’s office noted two key trends in the complaints that were received during 2010/2011. The first “ugly” trend was that of brokers licensed as providers in their own right but whose licences are limited in terms of the products they can sell. These brokers then go on to promote products they are not qualified to give advice on, such as unlisted shares and debentures. “As a result of their flawed understanding, these brokers then give their clients incorrect information by describing such investments as “safe investment vehicles for capital growth and income”. Because the brokers concerned had no skill but were only interested in lucrative commissions, they failed to ask relevant and obvious questions of the product providers. All of this led to losses suffered by consumers and as we have pointed out in several determinations, the providers who rendered financial services in such a reckless fashion will pay,” Bam says.

The second trend was the use of the words “attorneys’ trust account” and the reference to banks, certain auditing firms and property valuers, particularly in complaints related to property syndications. “The objective of this is obviously to win the trust of consumers so that they are easily parted from their money. However, some of the institutions named clearly had nothing to do with the property syndication. For example, Blue Pointer mentioned in its documentation that its auditors were KPMG – which was a lie. It is with great disappointment that we note how a firm of attorneys allowed itself to be used and went so far as to pass on monies that were supposed to have been fully accounted for to consumers, to the promoters of the property syndication scheme. That particular ruling was referred to the Law Society for further investigation,” Bam says.

“The sad but unavoidable bottom line is that consumers need to be more vigilant going forward, as scamsters constantly reinvent fraudulent schemes in order to line their own pockets,” she says.