FAIS Ombud calls for better apprehension of scam masterminds

The Ombud for Financial Services, Charles Pillai, has called for greater resources to be put into apprehending those responsible for setting up bogus investment schemes and also called on auditors to ensure suspected irregularities were swiftly acted upon.

Speaking at the launch of the 2006-2007 Annual Report of the Office of the Ombud for Financial Services Providers, Pillai said there has been significant growth in the number of complaints received by his office relating to investment in financial scams.

These scams ranged from bogus share offerings to risky offshore forex investment schemes which swallowed large sums of money and impacted poorly on the image of the financial services industry.

He cited his pronouncement on one case involving Global Investments which reputedly swindled investors of some R85-million; and seven other cases involving Leaderguard Spot Forex where investors lost an estimated R300-million.

One of the Leaderguard determinations prompted an invitation to the Ombud to address Parliaments Portfolio Committee on Finance (PCOF) to explain the determination.

"PCOF heard that fraudulent investment schemes had to be stopped in their tracks.

"This could only be done if more resources and effort were applied in preventing such schemes from entering the system and if there was effective prosecution of such white-collar crime.

"While the FAIS Ombud can pronounce on broker conduct where it involves investment in such scams, the real perpetrators those responsible for setting up the bogus schemes usually get away," said Pillai.

In a foreword to the annual report, Minister of Finance Trevor Manuel also expressed concern about the increase in bad practices by financial services providers.

"Admittedly, a challenge remains in that those not financially literate are often seen as a soft target for bogus schemes.

"Not only should the regulatory and prosecuting authorities deal harshly with vendors of such schemes, but a collective responsibility exists to promote consumer awareness," the Minister said.

In his report, Pillai said the Office of the FAIS Ombud has become a "prominent beacon on the national financial services landscape".

Complaints and enquiries have risen by 18 % (from 3 806 in 2005/06 to 4 484); the number of determinations grew from 11 to 15; and money returned to aggrieved consumers increased from R6,5 million to R10 million.

"Noteworthy is the phenomenal increase in complaints that fell within the jurisdiction of the FAIS Ombud. This has increased from 666 in the 2005/06 financial year to 1 320 in the year under review, representing a 98% increase.

"These are clear indications that the FAIS Ombud is recognised as a forum of choice for Complainants who seek decisions based on sound legal reasoning whilst ensuring fairness and justice," said Pillai.

Pillai was complimentary of the willingness on the part of financial services providers to settle valid complaints.

"The willingness to settle a challenge in the early stages of the Office is indicative of the impact of the jurisprudence already established by way of determinations issued as well as a greater respect for the independence and impartiality of the Office of the FAIS Ombud.

Pillai said South Africas burgeoning black middle class, referred to as Black Diamonds, soon would constitute significant consumers of financial services and products through changes in their financial and social status.

"Whilst this is a positive trend in our economic development, the concomitant adherence to the ideals envisaged in the FAIS Act and the recent raft of consumer protection legislation, must be upheld."

The Ombud said while the increased acceptance of the role of the Office of the FAIS Ombud was appreciated, there was still a far greater road to travel in the quest for ensuring sincere commitment to consumer protection by rallying behind a common set of values that will uphold the integrity of the financial services industry.

"In my view this can only be achieved through the establishment of a single, independent Ombud scheme for the financial services industry.

"State-recognised sectoral Ombudsmen will only prolong and exacerbate the confusion.
"Until there is a common independent platform for the resolution of disputes, the public will continue to suffer confusion in what can only be described as a jurisdictional labyrinth or Ombud market-place.

"The impetus to reach the goal of a simple, easily accessible, dispute resolution forum enjoying widespread trust and credibility must come from within the financial services industry.

"It is only by doing so that the industry can demonstrate commitment to the ethic of consumer protection and integrity in the financial services industry," said Pillai.

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