The best way for consumers to avoid disputes involving financial products and services is to become better informed and do their own research before entering transactions, says the FAIS Ombud, Advocate John Simpson (pictured).
Simpson and Leanne Jackson, the Chief Ombud and chief executive of the Ombud Council, gave presentations on the new FAIS Ombud Rules during a webinar last week.
Moonstone has reported on the changes introduced by new Rules, which came into effect on 1 July.
Read: Changes to aspects of FAIS Ombud’s approach to handling complaints
Jackson said FSPs can play an important role in contributing to the effectiveness of the country’s ombud system. They can do this by:
- Having clear, simple internal complaint-resolution procedures, and ensuring their customers know about them.
- Informing their customers about the different ombud schemes that apply to products and services.
- Updating their documentation to refer to the National Financial Ombud scheme, which has replaced the Credit Ombud, the Ombudsman for Banking Services, the Ombudsman for Long-term Insurance, and the Ombudsman for Short-term Insurance.
- Co-operating with the ombud scheme if a complaint is lodged against them. The new Rules require the FAIS Ombud to advise the FSCA of persistent or material failure to co-operate with the Ombud by an FSP or representative.
- Staying informed of reforms to the ombud system, so they can adapt their complaint-handling processes timeously.
Jackson said although it is disappointing to have to deal with complaints, FSPs should see them as a valuable source of information for improving their value proposition.
The most significant change in the new Rules is increasing the amount of compensation the FAIS Ombud may award for financial prejudice or damage from the previous maximum of R800 000 to R3.5 million (excluding any costs and interest the Ombud may award).
Simpson said the increase has not resulted in a massive influx of complaints or claims for large amounts. “Even if there were, I think we’d safely be able to handle it.”
Become informed to avoid problems
Consumers who are informed are the best protection against disputes and complaints involving financial services and products, Simpson said.
“We want consumers to be more aware, more involved in what they’re buying, and what they’re paying for […] The financial services industry can be regulated. You can introduce additional measures all the way through. But the consumer is the one that can actually offer the best protection for themselves by being more informed on their own and getting information on their own. That avoids a complaint, that avoids a dispute better than any regulations that one introduces or compliance measures that one introduces. The consumer is the best sort of prevention method for disputes and problems.”
Consumers who have some knowledge and information will know the right questions to ask an FSP or an adviser.
“That’s a far better scenario than going through the whole process, then a problem occurs, now you try and sort it out. Even if the FSP did something wrong – gave incorrect advice, for example – it’s far better to have realised that at the beginning and avoided that service or signed up for another product than having to sort it out afterwards,” he said.
He acknowledged that consumers find it difficult to understand some financial products.
“However, you can at least determine the basic salient aspects of it. The basic information of what this product does, how it works, who is it appropriate for. That you can certainly find out without having to understand the product in detail, so that when the adviser wants to sell you this product or recommend it, you at least have a basic knowledge of what this product does and how it works.”
New complaint-handling targets
Simpson said the FAIS Ombud’s office had a number of challenges, “to put it mildly”, when he was appointed in November 2022.
“There were a number of issues that needed to be dealt with. I’m happy to say that we’ve made massive progress since November 2022.”
When he started, the Office had about 1 500 cases that had been on its systems for 10, 12, or 13 years without being successfully resolved. “It was quite embarrassing”. The Office has resolved all those cases.
At this stage, the oldest case on the Office’s systems is probably about a year and one month, and it was busy closing about five or six cases that are older than a year.
Simpson said the Office’s forthcoming annual report will show that the percentage of cases that have been resolved in favour of consumers has increased from about 29% to about 35%. The average for ombud schemes is usually about 30%.
He said the Office has made significant progress in introducing proper case management procedures, so staff can stay on top of cases and ensure they are resolved as quickly as possible.
The Office’s aim is to issue an assessment to a consumer within 30 days of receiving a complaint that has no prospect of success – cases where, for example, the matter has prescribed, or it is clear the FSP has done nothing wrong, or where complaint does not fall within the Office’s jurisdiction, Simpson said.
“So, within 30 days, you get an assessment saying, sorry, on the basis of what we can see, there’s no prospects of an award being made in your favour.”
Complainants are afforded an opportunity to reply and provide the Office with further information they might feel is relevant. If, once further information is received, the Office does not believe there is any prospect of an award being made, the case is closed.
In some cases, further information is required from the FSP, or in certain cases, the Office believes the respondent has done something wrong, but it’s something minor, and the parties can resolve the dispute quickly. The Office tries to resolve those cases within an additional two months.
So, within three months, the Office aims to close or settle all cases where the complaint has no reasonable prospect of success, or where the Office is unable to assist, or where there is no indication of fault on the part of the respondent.
Only the more complicated cases – those involving multiple parties or difficult legal principle – are escalated to the adjudication phase, where they are handled by the assistant ombuds. These cases should be resolved within three months, Simpsons said.
Only a small number of cases that are particularly complicated should take longer than six months to adjudicate, but not longer than nine months.
“I’m very happy to say that we’re largely sort of complying with that. We’re certainly not allowing the cases to get older than nine months.”
If the Office makes an award, the case is closed only once it has proof of payment, or the complainant notifies the Office that payment was received.
He said 99.9% of cases are closed by way of a settlement between the parties. Simpson said he does not like issuing determinations and “avoids them like the plague”.
If he must issue a determination, it is sent to the relevant court and made an order. A complainant can use the court order to take action to claim the amount in the order.
No help if the entity is not authorised
Another significant change introduced by the new Rules is that for a complaint to be considered by the FAIS Ombud, it must relate directly or indirectly to a financial service rendered by or on behalf of an authorised provider.
This provision reinforces why it is important for consumers to verify they are transacting with authorised financial advisers. Consumers forfeit access to the Ombud’s dispute resolution service if the complaint relates to unlawful unregistered entities.
The Rules oblige the Ombud to refer complaints about unauthorised business to the FSCA, which has the necessary enforcement and investigative mandate and capacity to consider appropriate action.
Simpson said attempts by his Office to assist complainants who dealt with unauthorised entities were unsuccessful and created the perception that the Office could help these consumers, whereas it could not.
“A person falls for a scam on Facebook. We accept the complaint, and we try and get information from the respondent. It was invariable in 99% of cases the person would not respond. We would not even be able to get a hold of them. The number would disconnect. The email address didn’t even exist, so it was purely a scam from beginning to end. There’s nothing that we could do. These cases basically clogged up the system. To a large extent, we couldn’t add any real value.”
The Office still receives complaints where consumers have fallen for an investment scam on social media. The Office refers these cases directly to the FSCA or tells the complainant it cannot assist them.
The key message for consumers is that they must not deal with unregistered entities.
Simpson was asked about his Office’s approach where a registered FSP sold unauthorised products, as occurred with BHI Trust.
It is possible that his Office can look into such cases, but it depends largely on the available evidence. In the case of BHI, “the amount of information available at this stage is too little for us to adjudicate on it. And remember, you also need the participation of the respondent to be able to investigate a case,” Simpson said.
“As soon as the respondent doesn’t co-operate, you are unable to adjudicate. You do not have sufficient information on which to adjudicate and issue a judgement or a recommendation on the matter. In a circumstance like that, only the FSCA can take it further on an investigative and a regulatory process to try and determine the information, to try and determine the facts. If those facts do come out, and the information is then available, it is possible that one can adjudicate on it, but only while the FSP is still registered,” he said.
