FAIS Ombud urges business to respect human rights

There is still a yawning chasm preventing the harmonising of human rights and business ethics, says FAIS Ombud Charles Pillai.

Speaking at the Business and Human Rights Conference held in Johannesburg this week, Pillai who is the Ombud for Financial Services Providers, said based on cases investigated by his office, he believed the two concepts, human rights and business ethics, were unfortunately are still far away from finding accord with each other.

"Indeed, I can confidently say that at this stage that human rights and business ethics are very distant cousins who are not even on speaking terms," said Pillai.

The conference was held to highlight the need for business to be more accountable to human rights standards

Speaking on accountability and human rights in the application of consumer protection legislation, Pillai said business had an equal responsibility in brining about the changes envisaged by South Africa's new Constitution.

In recent years there has been a rash of legislation intended to achieve some of the egalitarian goals envisaged by the Constitution.

"Many of these enactments have been as a result of certain established market practices - or market imperfections as they are called - under apartheid which have survived and continue under the new Constitutional order.

"We can off the cuff think of many such enactments. In the field of finance and trade we can mention the National Credit Act; the Consumer Protection Bill; the Competition Act; and the Financial Advisory and Intermediary Services Act; among several others."

Outlining how the FAIS Act relates to the principles envisaged in the Constitution, Pillai said the Act was intended to address the dire paucity of information supplied to clients.

"The client knew virtually nothing first-hand of either the product or the service offered; the nature of the organisation offering it; and the intermediary advising the client to invest in the product.

"Thus, very often clients were unable to distinguish between good and bad products, especially if the latter ostensibly offered a high pay-off."

Pillai said another "imperfection" was that of "greed clouding judgment".

"More than anything, investments and financial products feed into the intense and selfish desire called greed.

"Unscrupulous operators have an incentive to hide as much information as possible while promising high returns. This then tends to weaken market discipline where it is most needed."

Pillai said another factor which, by virtue of the exploitation and abuse of clients would have been an important factor contributing to it, is the 'David and Goliath' factor.

"The David and Goliath factor is one that links directly to the principle of equality which forms the underbelly of our Constitution.

"In the financial services industry there have been very few cases, indeed one can count them on one hand and you will have free fingers left, where the average citizen took a financial giant to court and was successful.

"This is where the Office of the FAIS Ombud has a significant role to play. In the time we have in business, i.e. since 30 September 2004, we have resolved or issued judgments in scores of cases.

"The total estimated value of monies which were either resolved or ruled on amounts to just under R15-million.

"Now what do we say to the fact that this tribunal staffed by just 16 people, only six of whom are lawyers, was able to achieve this in such a short space of time?

"This then must surely rank as a worthy alternative to the mainstream court system. Most importantly, the service provided by the Ombud is free to the consumer. "

Pillai gave two examples of cases where the rulings relied on the principles of constitutional interpretation.

He said the very first determination issued by the FAIS Ombud on 21 July 2005 gave real meaning to what is contained in the guiding principles behind consumer protection as set out by the United Nations i.e. the Right to Choose.

"In our determination, a Mrs Helena Dennis of Cape Town insisted that she wanted her own household insurance.

"After much haggling and being referred to various forums Mrs Dennis eventually lodged a complaint with us.

"After investigation, and when the bank, Nedbank in this case refused to settle, we issued a determination where we found that banks were incorrectly interpreting a section of the short term insurance act by denying 'free choice' to consumers when it came to household insurance.

"Based on various provisions of the FAIS Act, we ruled that that archaic provision of the short term insurance act had to give way to the FAIS Act and we held that there had to be such choice."

Pillai also cited the Leaderguard scam cases to reflect their impact on socio-economic rights and the state's obligation.

He said the State and the regulatory authorities as organs of state charged with protecting the consumer against frauds and scams, had to ensure that there is effective enforcement of the provisions of the FAIS Act.

"To neglect to carry out its function effectively, the State may very well be saddled with an untenable social welfare bill because its citizens have been robbed of their life-ling savings.

"It is in the interest of the State to ensure that there is proper governance of the financial services industry, not only to ensure that it does not have to support citizens turned impecunious by scam operations, but also to ensure that it creates a stable and sustainable financial market.

"The latter is important to ensure that there is economic growth which is an overall a constitutional imperative.

I think we can agree that a number of the rights, particularly the socio-economic rights, have an attendant duty which rests on the State which has a monetary effect. "

Pillai said the objective of the FAIS Act is to ensure that there is consumer protection and that the integrity of the financial services industry is upheld.

"If we have integrity in the financial services industry, then there is confidence in the financial markets and this would ensure amongst other, benefits that people will feel secure in investing in the country; that our rand will be steady and stable and that the economy would grow.

"Obviously if people, especially the elderly and the poor and the vulnerable are the victims of scams or miss-selling, then if they have little or no money, the State has to support them and this increases the social protection budget of the state.

"So, all very good reasons to ensure that there is indeed proper governance of this sector.

Pillai concluded that in order to successfully implement a more human rights based approach to the financial services sector in this country, this industry that struggles to maintain integrity, needs to embrace the principles enshrined in the Constitution.

"Obscene profit margins should not be the motivating factor in the sale of financial products to individuals.

"While it cannot be denied that such industries thrive on profit, a balance has to be struck between making money and ensuring that individuals are provided with the best possible financial service suited to his or her needs."

He added there was need to reach out to the poor and marginalised through consumer education "While South Africa has made good progress towards the actualization of consumer rights, we still have a long way to go.

"We are constantly evolving and changing and best practices indicate that in order to reach people at LSMs 1-5, this industry must continue to expand and grow its consumer education programmes.

"It is only when we are able to reach those most marginalised - the elderly, the infirm, the disabled, those with low literacy levels, can we say that human rights truly prevails in the consumer protection sector. "