The Ombud Council is expected to start operating largely independently of the FSCA from the 2024/25 financial year, the Council said in a document explaining its proposed budget for the coming financial year.
The Chief Ombud and the chief executive of the Council, Leanne Jackson, published a notice this month inviting comment on the Council’s proposed budget for 2024/25.
The Ombud Council has supervisory jurisdiction over the statutory ombud schemes – the FAIS Ombud and the Pension Funds Adjudicator – and the recognised industry schemes: the Ombudsman for Long-term Insurance, the Ombudsman for Short-term Insurance, the Credit Ombud, the Ombudsman for Banking Services, and the JSE Ombud.
It ensures that the ombud schemes abide by their own rules and the relevant legislation and monitors the effectiveness and efficiency of the ombud system in general.
The Council commenced basic statutory functions in May 2021. Jackson was appointed as the first permanent Chief Ombud in November 2022.
Since inception, the Council has received corporate services support through a Memorandum of Agreement with the FSCA, which remained in place for the 2023/24 financial year. Therefore, the 2023/24 and 2024/25 budgets were prepared with no or limited baselines for comparative purposes, the Council said.
Levy, special levy, and fiscal transfer
The 2023/24 financial year was the first year in respect of which the Council received levy income, coinciding with the Council, effective 1 April 2023, becoming listed as a Schedule 3A entity under the Public Finance Management Act, effective 1 April 2023.
Chapter 16 of the Financial Sector Regulation Act, read with the Financial Sector and Deposit Insurance Levies Act, provide for the imposition of levies on supervised entities to fund the operations of the Ombud Council.
Per Schedule 4 of the Levies Act, all entities that must pay levies to the FSCA are also required to pay levies to the Ombud Council. The amount of the levy payable to the Ombud Council is equal to a fixed percentage (2.5%) of the levy amounts payable to the FSCA.
In addition to the levy income that it will receive in terms of Schedule 4, the Ombud Council will receive a special levy for each of the financial years 2023/24 and 2024/25. The special levy amounts to 7.5% of the levy amount payable to the Ombud Council in terms of Schedule 4.
In addition to the levy and special levy, National Treasury has approved a fiscal transfer of R13m to the Ombud Council for each of the 2023/24, 2024/25, and 2025/26 financial years.
This arrangement was made before the start of the 2023/24 financial year, when it was unclear when the Levies Act would come into operation, resulting in uncertainty over the Ombud Council’s source of funding. These transfers were therefore intended to provide contingency bridging funding and cash flow for the Council until its levy funding stabilised, at which point they would no longer be required, the Council’s explanatory document said.
Therefore, the Council’s revenue budgets for 2023/24 to 2024/25 reflect a fiscal transfer of R13m each of those years. The Council is engaging with National Treasury to determine whether, or to what extent, the 2024/25 transfer will be required. If it is not, the appropriate adjustments will be made.
Levy income set to increase by 11%
The Council has budgeted for gross revenue of R38.43m for 2024/25 (budget 2023/24: R35.926m), of which 66% comprises levy income, and the balance is the fiscal transfer.
The levy budget of R25.43m represents an 11% increase in levy income over 2023/24, attributable to the corresponding increase in levy income payable to the FSCA, per the Authority’s 2024/25 levy proposal.
Considering that the fiscal transfers are intended only as contingency funding, the Council’s budgeted expenditure is based only on its levy income and does not take the fiscal transfers into account. This results in the budget for 2024/25 reflecting a substantial surplus of R17.421m (R15.144m).
The operations expenditure budget of R21.009m (R20.782m) comprises staff expenditure of R10.82m (R8.594m) and general expenditure of R10.149m (R12.188m). Staff expenses represent 51.6% of the total expenditure budget.
The Council said the above-inflation increase in staff expenditure is mainly because of the completion of a job-grading process where some of the positions were graded higher than budgeted for in the previous year and the need to offer market-related remuneration for skills urgently needed to capacitate the organisation.
The decrease in general expenditure is mainly because the cost estimates in the previous year were made without a baseline.
Untested funding model
The Council said it does not have control over the legislated levy formula (a prescribed fixed percentage of the FSCA’s levy income) that drives its revenue. Any changes to that formula, if they are deemed necessary in future, will require a legislative amendment through Parliament.
The Council’s funding model is therefore untested, and its future appropriateness for the Council’s functions will be assessed once both the levy cash flow and the Council’s operating environment stabilise, it said.
Click here to download the Council’s draft budget.
Comments on the proposals must be submitted on the comments template to admin@ombudcouncil.org.za by 31 October 2023.
