A record year for FAIS Ombud complaints
On Friday, 23 October 2009, we attended the release of The Office of The Ombud for Financial Services Providers’ Annual Report 2008/2009. The Office reported a record haul of complaints for the period 1 March 2008 to 31 March 2009 and has handled a staggering 20 030 cases since its inception. With its help, aggrieved financial services consumers have clawed back R64 075 798 in monetary compensation.
The importance of the Office was affirmed in a foreword from the previous minister of finance, Trevor Manuel. “The impact of the FAIS Ombudsman on the financial sector has been remarkable in the relatively short time it has been in existence,” wrote Manuel. He praised FAIS Ombud Charles Pillai for fulfilling his objectives and raising the international profile of the Office!
Record number of complaints
The Office received a record number of complaints in the 2008/2009 year. Cases filed with the Office increase by 30%, from 5 720 to 7 416. The bulk of these cases (55% or 4 091) were assessed as ‘outside of FAIS jurisdiction’ and were subsequently dismissed or referred to appropriate forums. A further 1 200 cases were flagged due to insufficient information. The Office typically completes a complaint registration form (CRF), adding that this category includes CRF requests sent in the previous year and not yet received. These cases are dismissed unless the complainant furbishes the requested information within six months.
2 125 complaints fell within the jurisdiction of the Office in the 2008/2009 year. This represents an almost twofold increase on the 1 133 cases thus classified in the previous year. How did the Office handle the 7 416 cases? As already mentioned 2 707 cases were dismissed or referred out and 1 200 cases put on hold pending CRF. A further 19% of cases (1 384) were dismissed. The Office says 4% of cases (305) lodged in the 2008/2009 year resulted in settlements. The heavy workload meant a further 1 820 complaints were carried over into the next reporting period.
Financial services providers should pay close attention to the types of complaints being fielded by the office. The insurance industry dominates with 50% of all complaints originating in the long-term (27%) or short-term (23%) space. Investments (13%), retirement (5%) and medical (1%) are also mentioned. What might alarm some is the 31% (2 299) of cases marked as “not classified.” The Office says these claims had either not been through initial assessment stages or were outside the jurisdiction of the office. Another alarming statistic is 70% of complaints referred to other institutions were sent back to financial services providers and financial institutions!
Laying down the law
An impressive 616 cases were settled in the year, representing a 27% improvement over the previous year. This resulted in a record quantifiable settlement value. The Office ‘recovered’ R32 913 192 for complainants over the period. The average settled claim was R54 345 compared to R29 125/settled claim in the previous year. What happens when the parties to an Ombudsman recommendation refuse to accept it? In terms of Section 28(1) of the Act the Ombudsman must make a final determination. There were 21 determinations in the year under review, of which 14 were upheld in favour of the complainant and 7 dismissed.
The final curtain
The 2008/2009 Annual Report is possibly the last over which Pillai will preside. Pillai has indicated that he would like to pursue other legal interests when his current term comes to an end. Whether the powers can twist his arm to stay on for another term remains to be seen. In the interim we’ll leave you with a few words from Pillai’s Reflections after six years as South Africa’s first Ombud for Financial Services Providers.
In these observations Pillai draws on his experience to comment on challenges, regulatory failures, the appropriateness of the current appeals process and the need for improved consumer awareness. He also talks around some of the major disappointments in the past six years. “It is a sad indictment on our regulatory and prosecutorial authorities and the financial services industry itself that South African investors have fallen pray to unscrupulous service providers who are encouraged by the clear lack of enforcement regulation,” noted Pillai. He singled out the Leaderguard financial scam which ‘cost’ investors approximately R380m as one such event. The perpetrators remain at large “notwithstanding a report to the National Prosecuting Authority, Parliament and the Regulator.”
Editor’s thoughts: The FAIS Ombud has experienced a deluge of cases in the latest reporting period. Although the report offers no reasons for the increase, we wondered whether it had something to do with the treacherous financial conditions that prevailed in South Africa from the second half of 2008. To what do you ascribe the surge in complaints against financial services providers? Add your comments below, or send them to [email protected]
