SA Financial Ombud System Dissected

A 300-page diagnosis of the South African Ombud systems while the Olympics were on, and the Boks had to beat the British and Irish Lions to avoid a series defeat was quite a challenge, but I did manage to find time to read some of the auxiliary documents, including the media release and recommendations.

The management summary reminded me of the song “Oh what a circus” from Evita where Che, after the death of the leading lady, sings:

We’ve all gone crazy, mourning all day and mourning all night
Falling over ourselves to get all of the misery right

This just about sums up the current state of formal and informal dispute resolution mechanisms in the RSA.

The study was commissioned by National Treasury and prepared by the World Bank Group (WBG) to provide an independent review of South Africa’s financial ombud system and recommend reforms to enhance customer protection and good-quality outcomes in the financial services sector. The FSCA, as the regulator responsible for ensuring that customers are treated fairly in the financial sector, also participated in the process.

The study assessed the following ombud schemes:

• Credit Ombud
• Ombudsman for Short Term Insurance
• Ombudsman for Banking Services
• Ombudsman for Long Term Insurance
• Pension Funds Adjudicator
• Ombud for Financial Services Providers (FAIS Ombud)
• Johannesburg Stock Exchange Ombud

The study identified potential overlaps, gaps and inconsistencies both in the overall financial ombud system and individual ombud schemes and recommended further reforms.

She had her moments, she had some style

Current arrangements, based on sector-specific schemes plus piecemeal statutory reforms, have resulted in an ombud system that is fragmented and lacks overall coherence. This increases costs for providers and is difficult for consumers to navigate.

• There is a wide variation in complainant eligibility, processes, powers, and status of decisions among the Ombud schemes.
• There is insufficient customer accessibility due to language barriers and regional distribution.
• The lack of socio-economic data on complainants makes it difficult to identify and address systemic issues.
• Overlaps in jurisdiction, including between industry and statutory ombud schemes
• Significantly differing rules, eligibility, processes, powers and appeal mechanisms across schemes
• The fragmentation of the system hampers improvements in visibility and accessibility, especially for geographically remote and disadvantaged consumers

The above, plus a number of other issues resulted in a potpourri of consumer outcomes. As the report states: “Current arrangements, based on sector-specific schemes plus piecemeal statutory reforms, have resulted in an ombud system that is fragmented and lacks overall coherence.”

Recommendations to address the findings

The WGB team did not seek to transplant a model from another jurisdiction. Rather, it has applied the principles of good ombud practice to the particular circumstances in South Africa. The following are some of the recommendations:

• A new National Financial Ombud (NFO), independent of both industry and government, should be established to cover the whole financial sector (including credit) – apart from pension funds
• Reform and Rename Statutory Pension Funds Adjudicator (PFA) into Retirement Funds Ombud
• The NFO should be demonstrably independent—not only from the industry but also from the government. It should preferably take the corporate form of a non-profit company without members.
• The NFO would handle all complaints that seek redress from providers of financial services including credit, to enable the NCR and the FSCA to focus on dealing with enforcement, systemic sector-wide issues, and broader financial-literacy efforts.
• Implementing an update of complaint-handling requirements to improve consistency among financial services providers.

So, if all goes the way recommended, we can all hope for a far more coherent and independent dispute resolution platform, and hopefully, fair to all concerned.