Another busy year for FAIS Ombud
The Office of the Ombud for Financial Services Providers (FAIS Ombud) presented their 2006/2007 annual report at a well attended function outside Pretoria on Friday, 12 October 2007. In his foreword to the report, Finance Minister Trevor Manuel reminded readers what function the FAIS Ombud was expected to perform: The FAIS Ombud "provides a mechanism through which complaints against financial services providers can be lodged and resolved, either by mediation or determination."
It seems a flood of complaints has kept the FAIS Ombud extremely busy over the last 12 months. FAIS Ombud, Charles Pillai noted that the number of cases reported to his office surged from 3, 806 in the 2005/2006 reporting period to 4, 484 in the current year. The number of cases falling within the FAIS jurisdiction increased from 666 to 1, 320.
Surge in number of complaints
The FAIS Ombud is not able to attend to all the complaints it receives. Of the 4, 484 complaints, 67% fell outside the Office's jurisdiction. These cases (where possible) were forwarded to the relevant institution or regulatory body.
A total of 1, 550 cases were marked as closed / dismissed by referral in the 2006/2007 year. 72.26% (1, 120) of these cases were forwarded to financial services providers and other institutions. 122 cases and 85 cases were referred to the Ombudsman for Short-Term Insurance and Ombudsman for Long-Term Insurance respectively. And the balance went to the Financial Services Board (32), Motor Industry Ombudsman (14), Council for Medical Schemes (19), Credit Information Ombud (4), Pension Funds Adjudicator (47), National Credit Regulator (32) and the Ombudsman for Banking Services (75). There is certainly no shortage of regulatory bodies in South Africa!
A number of case studies were presented with the report. Pillai noted that the now defunct Leaderguard investment scheme had resulted in a stream of complaints to the FAIS Ombud. At March 2007 a total of 35 complaints (of which 22 fell within the Office's jurisdiction) had been received. Seven of these complaints have been handled, with the balance in various stages of investigation.
Investment and insurance top complaints
The majority of the 1, 320 complaints falling within the jurisdiction of the FAIS Ombud consisted of investment and insurance complaints. Of the total received in the 2006/2007 year 24% related to investments (including investments in underlying assets, endowments or unit trusts), 25% related to short-term insurance (household, vehicle and travel insurance) and 27% to long-term insurance (life, disability and dread disease)
Of particular concern was the number of cases involving "investments in schemes which were either not complying with the law, were fraudulent or pyramid schemes." The FAIS Ombud annual report also noted an alarming increase in claims relating to motor vehicle warranties, travel insurance and credit life insurance. These products were often added on to main products with little or no compliance with the FAIS Act and resulted in many complaints at claims stage...
Calls for tougher action
Pillai noted that of the 15 determinations made in the period (despite the Office's best efforts) seven were out on appeal. "Whilst the right to appeal is embodied in the FAIS Act, the consequence is that a case can be tied up in the appeal process for a considerable period of time with no enforcement of the award," said Pillai. The challenge to complainants is thus similar to that faced when making a formal court challenge; the individual going up against a large company is often defeated due to lack of perseverance, finances or both as the case draws on for years.
It seems the key players in the regulatory environment are aware of the problems in the financial services environment. Manuel referred to "illegal or sham investment schemes" in the foreword and pleaded with both regulatory and prosecuting authorities to "deal harshly with vendors of such schemes. Until such time as the perpetrators of bogus investment scams are properly punished, these types of activities will flourish and multiply.
When the FAIS Ombud was launched on 23 September 2004 Manuel said: "For FAIS to truly be a success, the consumer must be made aware of the complaint resolution channels available to him or her. Therefore educating the public with regards to the existence of the FAIS Ombud is critical." This goal remains crucial for the success of the Office in coming years.
Editor's thoughts:
It seems the FAIS Ombud believes its role will be enhanced by increased consumer education. Certainly the increase in complaints received in the latest period indicates the consumer is more aware of their rights than before. We believe that in coming years the focus will have to move to one of prevention rather than cure with a definite need requirement for perpetrators of financial scams and pyramid schemes to be punished for their crimes. Do you think we need more consumer education, tougher prosecution or both? Send your comments to [email protected]
