2008 Annual report of the FAIS Ombud

Five years after its establishment, the Office of the Ombud for Financial Services Providers is dealing more with issues affecting the poor, the marginalised and the vulnerable, FAIS Ombud Charles Pillai (pictured) said today.

He said these were the people for whom the FAIS Act was really supposed to cater and referred to a determination where he had harshly criticised a major furniture retailer, the JD Group, for fleecing a poor KwaZulu-Natal domestic worker, Thulisiwe Gumede.

Ms Gumede was a special guest at the launch of the 2007-2008 Annual Report of the FAIS Ombud where she expressed gratitude to the Office of the FAIS Ombud for saving her thousands of rands.

In his address, Pillai said that against the backdrop of turbulent financial markets globally, there was need to question the role of the ombud.

“Is it to coldly and clinically assess a complaint in the context of the contractual relationship or does it go beyond this and empower the masses to make informed choices?

“I ask this question in the particular context in which we, as a developing nation with its vast disparity between rich and poor, sophisticated and simple, educated and illiterate, find ourselves,” Pillai said, hoping the question would be debated in boardrooms, offices and homes.

In a foreword to the annual report, Minister of Finance Trevor Manuel, said despite regulatory measures and effective recourse mechanisms, there was no guarantee of absolute compliance with the law on the part of financial services providers.

“There are inevitably those who continue to flout the law with little regard for people’s hard-earned life savings or precarious financial circumstances.

“To these individuals we must send the resounding message that such action will not be tolerated by the Financial Services Board, the FAIS Ombud or our criminal justice system,” Manuel said.

During the year under review, complaints received by the Office of the FAIS Ombud grew by 28% to 5 720. Eighteen determinations were issued and 486 cases were settled in favour of complainants, involving a quantum of R14, 15 million, an increase of some 41% from R10 million in 2006-2007.

“However, what one would like to see is that these figures actually drop, because industry is getting it right.

“In other words they are ensuring that they resolve complaints internally and treat their customers fairly in the first place, so that no complaints come to the FAIS Ombud. But I think this would be wishful thinking at this stage,” said Pillai.

He said he was pleased with the way in which the financial services industry now marketed itself, with greater focus on professional education.

“Whereas previously broker events were marketed as ‘sales conventions’, they are now being marketed as serious symposia on professional development of financial services providers and representatives.”

This was clearly bearing fruit, Pillai said, as he had issued more determinations -12 out of 18 - where he did not uphold complaints.

“Whilst this endorses the independence of the Office of the FAIS Ombud, it is also positive indication that providers are in fact rendering financial services more professionally with an eye on compliance.”

The Ombud said the incidence of unauthorised policies continued to plague his office and credit life still demanded focused attention from the regulators.

Pillai recounted in detail the credit life exploitation of Ms Gumede who bought furniture from Barnetts Store in Port Sheptone.

She did not have cash. The total value of the furniture, a Tedelex 54 cm television set, a small Futronic Mini Oven and a television licence was R3004, 88. After signing “lots of papers” she finally left the store owing an amount of R6468, 89.

When she attempted to unpack all the paperwork with the help of her employer, a Mrs Van Zyl, she found she was sold a credit life policy, a warranty, a goods insurance policy and charged contract fees.

“Our investigations over an extended period of time, revealed a litany of errors, misrepresentations, improper explanations and incorrect calculations.

“While the company was ordered to refund Ms Gumede, one of the recommendations that we made was if furniture retailers want to be financial services providers, then they have to comply like every other registered financial services provider with the provisions, terms and conditions of the relevant legislation and codes of conduct,” said Pillai.

He added it was significant that 2082 or 37% of the complaints received were not meant for his office.

“This again reinforces my repeated claims that there is confusion out there as to the ombuds’ landscape and which ombud to refer complaints to.”

Guest speaker at the launch function, Walter Merricks, Chief Ombudsman at the Financial Ombudsman Service of the United Kingdom, said it was imperative that ombuds had legitimacy and authority to do their work.

“Consumers need to believe we have a legitimate status to be entrusted with their problems.

“Financial firms need to accept that we have some authority to make findings, recommendations or rulings pronounce on the merits of complaints that we see.”

Merricks said whilst legitimacy had to be derived from the governance framework within which ombuds operated, central to this legitimacy and authority was the concept of independence.

He lauded the fact that such independence is provided for in the rules for the FAIS Ombud that “in disposing of a complaint he shall act independently and objectively and (shall) take no instruction from any person regarding the exercise of authority”.

To read the full report click here (PDF file 1,021kb)