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Two ombud schemes to rule them all

28 March 2024 Gareth Stokes

The long walk to a consolidated ombudsman scheme environment took another step forward when the recently-established National Financial Ombud (NFO) Scheme commenced operations, from 1 March 2024. Over time, the NFO will become a single, one-stop, all-in-one dispute resolution service for your clients, South Africa’s financial services consumers. It will replace the Ombud for Financial Services Providers (FAIS Ombud) too, eventually.

Another FSR Act intervention

The Ombud Council granted the NFO Scheme recognition as an industry ombud scheme on 23 February this year, as allowed in section 194 of the Financial Sector Regulation (FSR) Act. It will initially be made up of four former ombudsman schemes including the Ombudsman for Banking Services (OBS); the Credit Ombud (CO); the Ombudsman for Long-Term Insurance (OLTI); and the Ombudsman for Short-Term Insurance (OSTI). Regular FAnews readers will recall that the two insurance-focused schemes have been working together since September 2020, as reported in Insurance Ombudsman could go 2x on recoveries from 2024

At the time, then Long-term ombudsman, Judge Ron McLaren, presided over the media launch of the third combined OLTI and OSTI Annual Report. “The three-year-long amalgamation of OLTI and OSTI into a combined Insurance Ombudsman scheme is just the start of a journey that will eventually see the scheme join forces with the Ombudsman for Banking Services and Credit Ombud, creating a unified financial services ombudsman scheme,” this writer reported at the time. “These reshufflings are a small but necessary tweak to deliver on the broader twin peaks framework for financial sector regulation”. 

Originals re-branded as predecessor schemes

In a notice titled ‘Recognition of the NFO Scheme as an industry ombud scheme’, the Ombud Council noted that it had already approved the NFO Scheme’s Memorandum of Incorporation (MOI) and the Rules of the Scheme. “The recognition of the NFO Scheme marks a significant shift in the financial ombud landscape; the scheme is the successful outcome of a substantial project to amalgamate four previous industry ombud schemes,” read the notice, which was signed by Leanne Jackson, Chief Ombud of the Ombud Council. The four schemes which were recognised by the council back in May 2022 will henceforth be referred to as predecessor schemes. 

“The Ombud Council will, in parallel with granting the recognition of the NFO Scheme, revoke the recognition of the predecessor schemes, with effect from midnight on 29 February 2024; separate notices to this effect will be published on the Ombud Council’s website,” Jackson wrote. She noted, however, that until at least end-September 2024, customers and affected financial institutions will still be able to use the predecessor schemes’ contact details as a gateway to access the NFO Scheme’s services. 

Any complaints in process at the four predecessor schemes at end-February 2024 will be managed to completion by the NFO Scheme. “The switch from the predecessor schemes to the harmonised and streamlined complaints handling service of the NFO Scheme, will be as seamless as possible,” she wrote. 

A new, single entry point process

Commenting on the latest developments, Reana Steyn, Ombudsman for Banking  Services said, “the long history of assisting financial customers in their respective sectors to obtain redress for unfair treatment by financial institutions, free of charge and with minimal formality, is a hallmark of the service consumers have come to expect and value”. She added that both financial customers and the participants in the scheme would benefit significantly as a result of the new single entry-point process, with the same rules applicable to all types of complaints. 

Other benefits include it being easier to create awareness and educate consumers about the existence and mandate of the single scheme; improved efficiencies at the administrative level; and a harnessing of the institutional knowledge, expertise and staff experience of the predecessor schemes, built up over more than 20 years. “Each of the predecessor schemes will operate as a division of the NFO Scheme,” Steyn said. Time will tell whether the consolidation delivers cost savings through reduced employee numbers and salary overhead in addition to the promised operational efficiencies. 

But wait, there is more…

National Treasury has also had its say on developments following the publication of a policy position statement titled A Simpler, Stronger Financial Sector Ombud System. The statement was the South African regulatory cluster’s response to a World Bank Diagnostic Study published way back in 2021, which provided an independent review of the financial ombud system. The World Bank recommendations were for “reforms to enhance consumer protection and encourage good-quality outcomes in the financial services sector”. PS, local regulators formulated this approach in 2017, as hinted at by the proposed reforms to the ombudsman system included in the FSR Act. 

“The diagnostic study identified potential overlaps, gaps, and inconsistencies in the overall financial ombudsman system and individual ombudsman schemes and recommended further reforms,” Treasury said, in its press release accompanying the publication of the policy position statement. Readers are also reminded that South Africa still has BREAK two statutory ombudsman schemes in the form of the Pension Funds Adjudicator (PFA) and FAIS Ombud. However, Treasury proposes additional tweaks to further streamline things, including: 

  • Structural reforms to the ombudsman system that will reduce the seven ombud schemes to only two: the National Financial Ombud (NFO) Scheme which will eventually ‘swallow up’ the FAIS Ombud and JSE Ombud in addition to the four predecessor schemes; and a Retirement Funds Ombud (RFO), which will be a renamed and reformed PFA.
  • Further modifications to the Ombud Council including the title and appointment of its chief executive, and a review of its powers in the light of the simplification of the ombudsman system.
  • Improved consistency across the ombud system on visibility and accessibility; eligibility of complainants; processes, powers and enforceability of decisions; and improved coverage to significantly reduce jurisdictional gaps and overlaps 

On grand designs and legislative amendments

As with all grand designs, “full implementation of the above reforms will require legislative amendments”. In the interim, Treasury has welcomed “the voluntary amalgamation, in consultation with the Ombud Council, of four of the current industry schemes to form a new, streamlined industry scheme, the NFO Scheme”. They acknowledged the development as an important step towards the broader reforms outlined in the policy position paper, saying that it would facilitate the eventual transition to a two ombud scheme environment. 

Writer’s thoughts:

The number of ombudsman schemes has no bearing on the treating customers fairly (TFC) principles that guide interactions between financial consumers and financial services providers (FSPs). Do you care whether South Africa has one, two or seven ombudsman schemes? And will your day-to-day client interactions change in response to today’s NFO Scheme announcement? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.

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