Is the FAIS Ombud still providing legal certainty in a complex environment?

The latest scathing remarks from the Financial Services Tribunal regarding the Office of the FAIS Ombud’s apparent failure to execute its duties properly need to be seen in the context of the historical development of the office.

In the beginning

The name Charles Pillai will ring a bell for those who were around when, in 2004, he became the country’s first Ombud for Financial Services Providers. On 1 April 2010, he was appointed as Pension Funds Adjudicator. Apart from his considerable legal qualifications, Pillai was also a highly regarded part-time actor and a playwright.

He combined these skills while adjudicating matters as the ombud, and his style of writing made his rulings a pleasure to read, except, of course, for those who had transgressed the newly promulgated FAIS Act.

Pillai brought legal certainty to legislation that was challenging for both the FSB as regulator and the industry, whose permission to self-regulate was withdrawn by the FAIS Act. Sadly, Pillai passed away of cancer on 6 November 2010, barely seven months into his new position.

Unfortunately, the guiding role of the Office of the FAIS Ombud in the correct application was gradually transformed into a more dictatorial one. The allowance for the ombud to operate in a less formal manner led to a number of controversial decisions, and a perception that the office saw itself more and more as being above the law, and above reproach.

Piercing the corporate veil

In a way, Pillai was lucky to be spared the onslaught of complaints which resulted from the implosion of a number of property syndications from around August 2011, when the Reserve Bank put a stop to these schemes.

Initially, complaints were laid against advisers only, but then the ombud made a ruling in the Siegrist and Bekker case that had serious repercussions, which still reverberate to this day, when she ruled that: “…Zambezi Retail Park was ‘nothing more than a Ponzi scheme’, with investors being paid interest out of their own funds”. She said an investigation by her office had “pierced the corporate veil” of how Sharemax operated and the directors of FSP Network, trading as USSA, and Sharemax had to be held “personally liable” for Siegrist’s loss and could not “hide behind the corporate veil”.

This finding was referred to the FSB Appeal Board. In an article on this for IOL, Roy Cockayne wrote:

• The judgment said section 20(9) of the Companies Act of 2008 gave the right to pierce corporate veils to courts and not to tribunals.
• There was not a specific complaint related to a financial service rendered to Siegrist or Bekker by one of the appellants. The right to join a person to a complaint must be issued before the ombud proceeds with an investigation, but there was nothing in the complaints as filed that called for a response from the appellants.
• There was also nothing in the notices to join that forewarned the appellants of the factual findings the ombud intended to make, especially those relating to the prospectus, fraud and the Ponzi scheme.

“This was a serious breach of the requirements of fair administrative action, and any court would on review have set aside the determinations on this ground alone,” it said.

Similar sentiments were expressed by the Appeal Board in the Prigge case, where the board really rode roughshod over the ombud’s failure to perform even the basics of law practice.

In the wake of these decisions by the Appeal Board, property syndication complaints appear to have been left in abeyance, which explains why more than a thousand cases have still not been finalised, 10 years after the event. This by a body that is empowered by law to expedite such matters.

The ombud is gone, but the malady lingers

The current ombud appears to sing from the same hymn book, if one looks at the recent Gawie du Toit decision by the tribunal, where the ombud is actually requested to “heed” its concerns. As our top story for today puts it:

It said procedural criticisms have been made “time and again” against the ombud similar to those that were raised in this matter. These were that the ombud:

• Did not follow the proper process in investigating and determining the matter;
• Did not act fairly and impartially; and
• Accepted the complainant’s version despite evidence to the contrary and where there were material disputes of fact.

It is therefore of great concern when one reads in the ombud’s 2019/20 annual report that the commissioner of the FSCA concludes: The Ombud’s Office deserves commendation for its perseverance towards executing on its mandate under some very challenging circumstances. These sentiments were echoed by the then Minister of Finance.

In a way, the industry, which funds the office of the ombud via levies, can be seen as shareholders. Certainly, as such, it should be asking probing questions about these problems, and what those tasked with supervising the office of the ombud are doing about the current state of affairs.

Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies.