Moonstone Monitor 14 February 2008

New Approach from the FAIS Ombud?

Most of the complaints received by Mr. Pillai in the past were resolved through mediation and arbitration. In 2007 the FAIS Ombud only published seven determinations on his website. So far this year there are five already. Are we seeing a change in his approach to complaints?

The first case, which we reported on last week, concerned the sale of credit insurance to a person without proper disclosure of what she had signed for. The other four cases can be summarised as follows:

• In the Osman case, the Ombud states in respect of the client that "...it was an inept attempt to ensure there was insurance cover before filing a claim." The brokerage concerned was able to provide evidence that it had followed instructions from the client.
• The De Nobrega complaint revolved around the client claiming that he was not aware of the requirement that he had to have a VESA approved gear lock or self-activating immobiliser installed in the vehicle. Again, evidence to the contrary was provided and the complaint was dismissed.
• The Zackey case concerned the repudiation of a claim as a result of the client not complying with the conditions of the policy. In essence the Ombud found that: "...the broker’s duty was to draw the insured’s attention to material conditions of the contract prior to inception of the policy and ...the insurer’s duty (was) to forward a copy of the policy to the insured timeously." Failure by both to prove that they had done so led to the determination going against them.
• The Penzorn case related to a complaint regarding the alleged failure by Respondent to disclose the costs involved in a financial service rendered by it to Complainant. The Ombud found that the broker could not prove that he had in fact fully disclosed the cost implications of an investment to the client. Her complaint arose as a result of her only discovering the monetary value of the commission on receipt of the policy document. The Ombud ordered that a substantial part of the commission be repaid to the client.

It is interesting to note that these cases all concern events that took place between 2004 and early 2006. In two of the cases they clients were referred to the FAIS Ombud by the Short-term Ombud in view of the nature of the complaints.

It does not appear as if the Ombud has had a change of heart in terms of his approach by suddenly avoiding steps to find an amicable solution to complaints. There are, in our view, two aspects at work here.

The first is that clients are trying to use the office of the Ombud almost as a small-claims court where they have little to lose. We notice that, in the Zackey case, Mr. Pillai again ruled that the complainant should also fork out the R1 000 case fee but strangely enough in the Osman case, where the client was clearly in the wrong, the broker was ordered to pay this fee.

The second aspect concerns the insight into how events are proceeding; if it becomes evident that one is unable to refute allegations, one should consider following the route of least resistance, rather than forcing the hand of the Ombud with the resultant negative publicity.

A question that we have asked time and again, and still have not had any clear direction on, is what happens in instances where there are serious transgressions of the FAIS Act? The Act makes provision for further legal action, but if such action is taken, it is kept very quiet. Guidance from a compliance expert should possibly be sought.

We see on the FSB's website that a number of FSP licenses have been withdrawn or suspended, but no reasons are given. Maybe the time has come for this to be done in cases where the misdemeanor warrants expulsion from the industry? The S-coding procedure employed by the Life Offices Association in effect prohibits transgressors from being employed in the industry for a period of time - perhaps the whole financial services industry needs to adopt this attitude.