FAIS Ombud ‘disappears’ 1000 complaints against advisers

In its 2021/22 financial year, the office of the FAIS Ombud indicated that it had reduced the number of active property syndication complaints to just (sic) 1004 cases, from a starting point of around 1300. The Ombud re-committed to whittling away at this list over the following period; but instead of pushing ahead with these decades-old matters it opted to drop a bombshell on the financial advice industry. Mid-July 2023 it became clear that the Ombud would be closing all historic property syndication matters without adjudicating them, and was in the process of communicating same to affected stakeholders.

Wait, what? Did we hear correctly?

After all the accusations and counter-accusations, after all the pain and suffering, and after all the emotional and financial stress caused to both advisers and investors, the organisation tasked with ensuring fair outcomes for financial services consumers simply walked away from the mess. In its coverage of the development, moneyweb.co.za reported that the FAIS Ombud was “writing letters to the [affected] complainants informing them that it had determined that their complaints were more appropriately dealt with by a court of law”. It appears that some 70 letters had already been ‘posted’ and that the remainder would be ‘penned’ in due course. 

The decision will see respondents, mostly financial advisers, breathing a collective sigh of relief, while investors who complained about the financial advice that led them to invest in the likes of Blue Zone Investments; Highveld Syndications; and Sharemax will probably be left without any practical recourse. Although FAIS Ombud Advocate John Simpson told various publications that these complex matters were best heard by the courts, it is unlikely the cash-strapped and often aged complainants will be able to pursue such relief. Imagine, dear reader, waiting pensively for six years or longer for a ‘fair and equitable’ ruling on your complaint, only to learn that you face another costly, multi-year process for resolution, if any. 

This outcome should not surprise anyone

It is common knowledge that several of the FAIS Ombud’s historic property syndication-related determinations made against financial services providers (FSPs) between 2019 and 2021 were subsequently set aside by the Financial Service Tribunal (FST), with the FAIS Ombud ordered to reconsider its decisions. It is also known that a number of the FAIS Ombud’s ‘reconsidered’ decisions … which reached similar conclusions but for different reasons … were also discredited by the Tribunal. If you have time, you can visit the FST website and read up the cases like FAB 154/2021; FAB 139/2021; FAB 97/2021; and FAB 65/2021. 

The main reasons the FST set aside the original determinations include material disputes of fact and concerns, in most cases, over the basis for legal causation. So, even if an investment should not have been recommended, the Tribunal felt there was no way that a court could conclusively rule that negligent financial advice was sufficiently linked to the loss suffered. In this context, it comes as no surprise that upon a review of the various FAIS Ombud and FST judgements, the new FAIS Ombud, who took office from 1 November 2022, opted to change track. As already mentioned, complainants in the various historic property syndication matters can now expect letters explaining that the office of the FAIS Ombud has little or no reasonable prospect of resolving their complaints. 

The letter informs affected complainants that their cases raise substantial factual and / or legal questions that are better answered by a court of law! PS, in the correspondence FAnews has been privy to, the FAIS Ombud further concedes that there were numerous factors that led to the eventual failure of property syndication investments, that would, in many instances, have made it difficult for an adviser to have foreseen the risk. Those who follow these matters will recall issues around the timing of FAIS licences being issued and the impact of the South African central bank insofar declaring certain investments ‘illegal deposit taking schemes’, among other hiccups. 

Can affected parties afford court challenges?

The FAIS Ombud communication to affected complainants concludes with a rather terse: “In terms of section 27(3)(c) of the FAIS Act, the Office declines to take the matter further and determines that it is more appropriately dealt with by a court; the file on this matter is now closed”. Case closed? Well, yes, unless the affected parties have the appetite for court action. The question industry stakeholders must now wrestle with is how so much time was allowed to pass without reaching resolution? A decisive “this matter is better heard in the courts” would arguably have been of greater help while the transgression was current. 

To effectively put the lives of thousands of customers and financial advisers ‘on hold’ for periods exceeding seven years is unacceptable, and makes a mockery of the six Treating Customers Fairly (TCF) principles that are enshrined throughout South Africa’s financial services regulation. Yes, there is some consolation in the fact that the running of prescription is suspended for the period that a matter ‘sits’ with the Ombud. However, ombudsman schemes are designed as an alternative resolution mechanism for individuals who do not have the financial means to access the court systems. 

No clear path for an informal resolution

In his responses to various media outlets, Advocate Simpson admits, anecdotally, that most respondents are aged, and that some have passed away since lodging their complaints. Quoted on moneyweb.co.za he said: “As the closing letters convey, based on the decided cases in the FST and the conflicting court decisions, there was no clear path to resolving these disputes on an informal basis … there was no reasonable prospect of the Office being able to resolve these highly disputed matters”. The advocate also dismissed ‘out of hand’ any possibility for the FAIS Ombud launching a class action on behalf of complainants. 

To play devil’s advocate, should the class action that develops out of this mess not be brought by disgruntled advisers and / or investors against the FAIS Ombud? It is a proposal that will bring a wry smile to many of those affected by property syndications, but has practically zero chance of happening, or so this writer has been told. 

Writer’s thoughts:

The decision by the FAIS Ombud to close 1000-plus property syndication matters without adjudicating them raises an interesting question. Given the Financial Sector Tribunal’s comments on legal causation, will a law firm dare name a financial advisers as defendant in any resulting court action? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za