On 23 January, our article: Improving Internal Complaint Mechanisms discussed the proposed measures, contained under the draft Market Conduct Framework, to align your internal complaints management framework with the TCF outcomes. The same draft, published by National Treasury, expands on this theme with proposals concerning alternative dispute resolution (ADR) mechanisms for consumers. The information below is extracted from the draft document.
A fundamental component of an effective consumer protection framework is appropriate customer recourse channels. Customers should have access to affordable, effective and independent mechanisms to address complaints, resolve disputes, and secure a fair outcome when broader customer protection frameworks have failed.
South Africa’s existing ombuds system is an important redress mechanism in the hands of customers. However, as the system of financial sector regulation in South Africa is being consolidated and strengthened through the Twin Peaks process, additional work will also be required to improve and streamline the ombud scheme architecture, so that it efficiently delivers quality outcomes for customers and is a strong pillar in the reformed regulatory system.
The Current Framework
South Africa has a mix of voluntary and statutory ombuds, generally organised on a sectoral basis. The Financial Services Ombud Schemes (FSOS) Act was introduced in 2004 and governs all ombud schemes, statutory and voluntary. Voluntary schemes are recognised by the Financial Services Ombud Schemes (FSOS) Council in terms of the FSOS Act.
This Act provides the foundations of an ombud system based on:
- Independence
- Impartiality
- Confidentiality
- Openness and transparency
- Accountability
- Integrity
- Clarity of purpose
- Effectiveness
The ombuds have played a valuable role in dispute resolution, and have worked to improve turnaround times for dealing with the increasing number of cases, partly brought about through an increasing awareness among customers of the schemes themselves. However, recent reviews and assessments of the ombuds schemes have pointed to weaknesses in the current system. For example in 2007 the FinMark Trust identified certain shortcomings in the present ombudsman structure in its report “Landscape for Consumer Recourse in South Africa’s financial services sector”. Problems which have been identified with the operation of the ombuds schemes include:
- A general lack of knowledge by consumers about ombud schemes
- Inadequate transparency and accountability of ombuds
- Jurisdictional boundaries of the various ombuds and customer confusion
- The need for greater coordination and consistency between ombuds.
From a customer perspective, trying to access the current fragmented ombuds system for an increasingly interconnected financial sector can be very confusing. As just one example, a customer mis-sold an insurance product through a bank distribution channel could complain to the FAIS ombud, banking ombud or an insurance ombud. A central call centre has been established to try and address this issue, directing complaints from a central point to the relevant ombud office, but more can – and should – be done.
Consolidating the Ombuds Scheme under Twin Peaks
Once the FSOS Council is established through the FSR Bill, and as the consolidated market conduct policy framework is developed and entrenched, the stronger FSOS Council is intended to start addressing weaknesses in current ombud arrangements. In particular, these are:
- Coordination and Consistency: A key focus of the council will be to ensure better coordination and strengthened oversight of ombud activities, and a more unified approach to external dispute resolution across the financial services sector.
- Accessibility and Awareness: in 2013 it was found that only 43% of the complaints received by the FAIS Ombud fell within the jurisdiction of that ombud, suggesting that consumers still have a poor understanding of how best to direct their complaints.
