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Challenging the Ombud’s reasoning

05 March 2020 Myra Knoesen

Following the determination in which the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud) said Sophia Elizabeth Coetzer t/a Downstream Trading committed a breach of her agreement with Tasha Christelle De Beer, in that she failed to provide suitable advice, the matter was taken to the Financial Services Tribunal.

The application for reconsideration

This matter is before the Tribunal by virtue of the Chair’s directive indicating that there was merit in the application for reconsideration. The directive recorded the following: “Leave was granted. There are material factual disputes on the papers, and the conclusion of the Ombud is subject to doubt. It is not understood on what basis the Ombud rejected or ignored the applicant’s allegations.”

Coetzer t/a Downstream Trading is the applicant. De Beer is the first respondent and the FAIS Ombud is the second respondent.

The applicant challenged the determination of the FAIS Ombud dated 26 March 2019, which ordered the applicant to pay the first respondent an amount of R750 000 together with interest. According to De Beer, the applicant failed to render financial services in accordance with the FAIS Act and the General Code of Conduct, resulting in her suffering financial loss.

The applicant based her application on three main grounds namely that the determination of the FAIS Ombud was premature, the first respondent had alternative remedies by approaching the court and the compensation awarded is not fair if one has to take into consideration how it should be calculated. The application therefore is limited to the determination on the quantum aspect. In particular, if and to what extent the first respondent suffered damages.

The applicant’s case

The complaint related to two investments one of them being the investment in Unimin African Resources (Unimin shares). According to the applicant the matter was already determined in court. The first respondent, a party in those proceedings, was cited as the eighteenth respondent therein, claiming repayment of her investment in the company, Unimin African Resources.

The applicant’s case is that De Beer should have sought recourse by virtue of the relief granted as per the court order. It was therefore argued the Ombud should have also taken cognisance of the aforesaid and not made a fresh determination again.

The first investment related to Platfields shares. It was argued that the amount in respect of the Platfields shares of 150 000 should not form part of the award as she did not suffer such actual loss. The circumstances around the Platfields shares were set out and explained in detail by the applicant.

In considering the matter, the Ombud was aware of the aforesaid facts and recorded inter alia the following in the said determination - During 2012 De Beer requested the applicant to assist her with selling her Unimin and Platfields shares. It was only then that De Beer became aware that the Unimin shares were changed to ordinary shares which could not be sold and at the time, the Platfields shares were worth only R3 000, a fraction of the R150 000 invested. Furthermore, the complainant was unable to access her funds.

In the determination it was recorded that the first respondent had unclaimed securities. She was contacted by the applicant. The applicant offered to assist the first respondent. There was an agreed upon percentage of the value of the unclaimed shares which the applicant would benefit from. It was alleged that the applicant charged a fee of 20% of the value of the transaction, being R178 000. The applicant alleged that the first respondent was given a discount in respect of services rendered by the applicant, thus claiming only R150 000 (paid in the form of the Platfields shares). The applicant further claimed that she never provided financial advice to De Beer. She merely directed the first respondent to the Unimin’s website. It was the first respondent who conducted her own research into Unimin.

The Ombud’s stance

The Ombud found that the applicant indeed rendered financial advice in respect of selling the Netcare shares and purchasing the Unimin shares. In discharging these obligations towards the first respondent, the applicant had a duty to comply with the FAIS Act and the General Code of Conduct.

Consequently, the Ombud found that there was a contravention of Section 7(1) of the FAIS Act where it is required that reasonable and appropriate general explanation and the nature of the transaction must be explained to the client and that full and frank disclosure of the investment should have been made.

In respect of the quantum aspect, the Ombud determined that the complainant invested R600 000 into Unimin. The Ombud further found that with regard to the R150 000 that was invested in Platfields, the Platfields listing on the JSE had been terminated and there was currently no reported share price. The Ombud’s reasoning as to why the first respondent should be awarded compensation in the total amount of R750 000 was that it was unlikely that the first respondent’s capital of R600 000 could be recovered in respect of her investment in Unimin as well as the R150 000 in respect of her Platfields investment.

The argument was proffered on behalf of the applicant, that the Ombud failed to determine the actual losses suffered by the first respondent. By virtue of the court order the first respondent was entitled to claim repayment of her investment from Unimin. There is no evidence before as to whether De Beer pursued her claim by virtue of the court order. It appears not. However, it was incumbent upon the office of the Ombud to make such enquiry. If such enquiries were made, it was not recorded in the determination.

It was argued that the Ombud should have made enquiries to determine the current value of the shares issued to the first respondent. Such value should have been set off against the actual investment made by the first respondent.

The Tribunal’s view

According to the Tribunal, the relevant facts were placed before the Ombud namely that the Ombud appears to have considered the court order which ordered Unimin to repay the subscription of the shares to shareholders.

The Ombud further took cognisance of the explanation proffered by the applicant that the complainant would be refunded for her loss and further that the applicant would appreciate the opportunity to engage with the complainant or to explore a settlement. However, the Ombud failed to address on what basis the explanations furnished by the applicant pertaining to the investments were not upheld.

The Tribunal finds that the Ombud’s reasoning appears inconclusive in that the explanations proffered by the applicant regarding the quantum aspect were not addressed.

Having considered the determination and contentions raised, it is the Tribunal’s view that the matter be remitted to the Ombud for reconsideration. In particular, to determine to what extent the first respondent suffered losses in respect of the two investments.

Writer’s Thoughts:
In the FAIS Ombud’s determination, Coetzer advised De Beer to move her funds from Netcare to Unimin. Without Coetzer having intervened, this transaction would never had been concluded. I believe Coetzer set herself up for failure, but some may disagree. Do you believe the Tribunal’s view that the matter be remitted to the Ombud for reconsideration is the fair route to go? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za

Comments

Added by cynical simon, 05 Mar 2020
The presumed benefits of the Ombud system has become questionable and unwinnable..
Firstly it seems to have become the norm that the Tribunal overthrow the determinations of the ombud since there often is the blatant disregard of relevant and crucial facts by the office of the Ombud.
Secondly the findings of the Tribunal that the matter be remitted to the Ombud for reconsideration appears to be just another way of sweeping it under the carpet. as I have not seen a single of these reconsideration's resulting in any correction of the original erroneous decision.
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