National Treasury has published proposals for comprehensive reforms to the country’s financial ombud system that, if implemented, will ultimately result in all the current ombud schemes being replaced by a single scheme independent of both the government and the financial sector.
The proposals are contained in a document called “A simpler, stronger financial sector ombud system”. They were published a day before the first phase of the reforms was achieved: the new National Financial Ombud (NFO) officially opened its doors on 1 March.
Read: New National Financial Ombud scheme launches
The NFO sees the amalgamation of the Credit Ombud, the Ombudsman for Banking Services (OBS), the Ombudsman for Long-term Insurance (OLTI), and the Ombudsman for Short-term Insurance (OSTI).
Treasury’s policy document calls the NFO created by the amalgamation of the four “predecessor schemes” NFO1.
NFO1 will form the core of a new NFO, called NFO2, which will absorb the work currently carried out by the remaining industry ombud scheme, the JSE Ombud, and the statutory FAIS Ombud, which will eventually be wound up.
Treasury’s proposals also envisage the creation of a Retirement Funds Ombud (RFO) and enhancing the independence of the Ombud Council (OC).
Features of the NFO
According to Treasury’s Policy Statement, the key features of NFO2 are:
- It will be independent of the government, the regulators, the financial industry, and consumer bodies.
- Its board will not be appointed by the Minister of Finance.
- It will not be a public entity for the purposes of the Public Finance Management Act (PFMA) and will not be subject to the Act.
- It will not be financed by the state (read: taxpayers’ money).
- It will not be funded through the levies provided for in Financial Sector and Deposit Insurance Levies Act or similar levy legislation.
- It will be funded through fees that the relevant financial institutions will be required to pay, under funding rules approved by the OC, to ensure that the funding regime is “sufficient and fair”.
- The NFO board will appoint the NFO ombuds.
- The NFO will automatically have jurisdiction over licensed financial institutions.
- The decisions by NFO ombuds will be legally enforceable.
- Decisions by ombuds can be reconsidered by the Financial Services Tribunal.
- New legislation will grant the OC power, through recognition and oversight, to provide some statutory underpinning to NFO2’s status, jurisdiction, powers, and accountability.
“The NFO’s jurisdiction will be flexible, to allow for [the] phased expansion of either NFO1 or NFO2 beyond sectors covered by the existing ombud system (for example, payments), to include the activities of all regulated financial institutions – in line with [the] broader reshaping of the market conduct regulatory framework through the COFI [Conduct of Financial Institutions] Bill,” Treasury’s Policy Statement said.
The NFO’s jurisdiction over credit providers will stand alongside the role of the National Credit Regulator (NCR), which can also receive complaints in this sector as part of its statutory oversight.
“National Treasury and the Department of Trade, Industry, and Competition will keep complaint-handling arrangements in the credit sector under review, in light of experience,” the Policy Statement said.
Separate ombud for retirement funds – for now
The reformed RFO will be created by renaming the Pension Funds Adjudicator (PFA) and enhancing its governance to underpin its independence. It will continue the PFA’s existing jurisdiction over all complaints that seek redress from providers of retirement funds, including administrators and employers.
The COFI Bill will rename the PFA and clarify the RFO’s jurisdiction. Reforms to the governance structure of the RFO will be proposed and consulted on through an Omnibus Bill.
At this stage, Treasury says, incorporating the RFO within NFO2 will add a layer of complexity to what will already be a complex transition and delay reforming the ombud system. But Treasury says its “medium-term intention” is for the NFO to take over the work of the RFO.
In the meantime, the RFO will continue to be a public entity and subject to the PFMA.
The RFO will be given its own board, appointed by the Minister of Finance “on terms that secure its independence”. The RFO board will appoint the RFO ombuds.
The Ombud Council will review co-ordination between the RFO and the NFO and make appropriate rules, if necessary, to minimise any risks of retirement fund complainants “being passed from pillar to post” where their complaint relates wholly or partially to advice or intermediary services.
Treasury has decided that complaints about advice or intermediary services in relation to retirement funds will go to the NFO (as successor to the FAIS Ombud) and not to the RFO.
This is because Treasury is concerned that adding advice- or intermediation-related complaints to the RFO’s jurisdiction will have unintended consequences, including:
- jurisdictional overlaps where intermediaries provide services on both retirement funds and other types of financial product;
- jurisdictional inconsistency between intermediaries who are representatives of retirement fund-related entities and those who are not; and
- the duplication of skills and resources across the RFO and the NFO.
More independence for the OC
The OC currently has supervisory jurisdiction over the two statutory ombud schemes and the recognised schemes. Its oversight responsibilities relate to ensuring that the ombud schemes abide by their rules and the relevant legislation and to monitoring the effectiveness and efficiency of the ombud system in general. It does not adjudicate complaints, nor is it an appeal body.
Treasury proposes to modify the OC’s statutory provisions to give it increased independence.
Currently, the Minister of Finance appoints the OC board and the Chief Ombud.
The proposals are for the minister to continue to appoint the OC board, “on terms that secure their independence”, but the board will appoint the OC’s chief executive officer – the head of the OC will no longer be called the Chief Ombud.
Later, once the NFO and RFO are in place, the OC’s powers will be reviewed in light of the reformed and simplified new structure for the ombud system, Treasury said.
