South Africa’s current ombud is too complex for consumers to navigate – and simplifying the system is the main reason for National Treasury’s proposed reforms.
Treasury says the aim of the reforms is to create “a simpler, accessible, comprehensive, efficient, and effective” financial ombud system.
Its Policy Statement on the reforms – issued last week – follows a public consultation process on a report by the World Bank Group (WBG) published in 2021.
The WBG study, titled “South Africa – Financial Ombud System Diagnostic”, provided a review of South Africa’s financial ombud system and recommended reforms to enhance consumer protection and encourage good-quality outcomes in the financial services sector.
The report contained 62 detailed recommendations. Broadly, it recommended a reformed and simplified structure comprising a new National Financial Ombud (NFO), a reformed Retirement Funds Ombud (RFO), and a modified Ombud Council (OC).
Treasury and the FSCA asked the WBG to examine the ombud system and make recommendations after the failure to reach agreement over reform proposals put forward by Treasury in 2017.
Treasury said it has consulted publicly about the WBG’s report and its recommendations.
“Respondents generally accepted the WBG’s detailed analysis of the current system and its weaknesses. The WBG’s recommendations for reform commanded widespread support. Unlike in 2017, there was a high degree of consensus,” Treasury said in a Feedback Statement published with the Policy Statement.
Difficult to navigate
“The complexity of the current financial ombud system means that, however good any individual ombud scheme may be, the overall system is not as accessible, efficient, and effective as it needs to be. Consumers find the complexity difficult to navigate and may just give up, or their experience – if they decide to continue – may be unnecessarily inefficient,” the Policy Statement said.
To illustrate its point, Treasury provides an example of a typical transaction for an unsophisticated consumer. The consumer takes out an unsecured loan. The lender advises the consumer to take a loan package that includes credit insurance underwritten by an insurer.
Later, the consumer loses her job and cannot afford the loan repayments and claims on the insurance. The insurer rejects the claim. The lender says this is not its problem and expects the consumer to continue to pay.
In relation to this problem, the Policy Statement said, the consumer is expected to deal with a multiplicity of ombud schemes, plus a regulator, about the following:
- Whether the insurer should have paid up. If the credit insurance included life cover, the complaint must be dealt with by the Ombudsman for Long-term Insurance (OLTI), or the Ombudsman for Short-term Insurance (OSTI). If the insurer does not belong to either of these schemes, the complaint must go to the FAIS Ombud.
- Whether the lender provided incorrect advice about what the insurance covered. This must be dealt with by the FAIS Ombud.
- Whether the consumer must continue the repayments to the lender. If the lender is a bank, the complaint must be dealt with by the Ombudsman for Banking Services (OBS). If it is a non-bank lender, it must go to the Credit Ombud. If the non-bank lender is not a member of the Credit Ombud, it must be referred to the National Credit Regulator.
It should be noted, however, that the amalgamation of four ombud schemes that took effect on 1 March may simplify the consumer’s journey. The Credit Ombud, OBS, the OLTI, and the OSTI have been absorbed into the NFO.
Treasury’s proposals envisage the NFO (“NFO1”) as forming the core of the new NFO (“NFO2”).
NFO2 will, in due course, absorb the JSE Ombud and will eventually absorb the FAIS Ombud.
Legislation will be introduced
Treasury’s Policy Statement said the final form of the new ombud system will be based on the combined effect of existing legislation, including the existing rule-making powers of the OC, together with new primary and subordinate legislation.
Treasury will introduce primary legislation in Parliament to:
- allow the OC to recognise an entity as the NFO;
- underpin the NFO as a body independent from government and industry;
- rename the Pension Funds Adjudicator as the RFO and update its legislation; and
- increase the independence of the OC.
The new primary and subordinate legislation will include:
- the Conduct of Financial Institutions Bill (COFI), including consequential amendments to the Financial Sector Regulation Act (FSRA);
- a new Omnibus Bill further amending the FSRA, COFI, and/or other laws; and
- conduct standards made under them and future OC rules.
Treasury said it is in discussions with the OC about which details of the new ombud system are best dealt with in primary legislation and which are best left to the rule-making and designation powers of the OC.
“Legislation will necessarily take time. National Treasury will facilitate the tabling of the COFI Bill in Parliament as soon as practicable and hopes that a draft of the Omnibus Bill will be published for consultation during 2024,” the Policy Statement said.
