SOUTH AFRICA Financial Ombud System Diagnostic © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433, USA. Telephone: +1 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. RIGHTS AND PERMISSIONS The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for non-commercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA. Fax: +1 202-522-2625; e-mail: pubrights@worldbank.org. Photo Credit: Depositphotos.com Editing: Charles J. Hagner Design and Layout: FPS Groups TABLE OF CONTENTS ACKNOWLEDGMENTS............................................................................................................. VII GLOSSARY.................................................................................................................................. IX LEGISLATION CONSULTED.................................................................................................... XIII INTRODUCTION........................................................................................................................ XV SUMMARY OF KEY FINDINGS AND RECOMMENDATIONS................................................XIX DETAILED FINDINGS AND RECOMMENDATIONS Financial Ombud System Role and Standards 1 ROLE OF A FINANCIAL OMBUD SYSTEM........................................................................... 1 1.1 CONSUMER TRUST AND CONFIDENCE IN FINANCIAL SERVICES...................................................1 1.2 WHAT A FINANCIAL OMBUD SYSTEM DOES..................................................................................... 3 2 INTERNATIONAL GOOD PRACTICE FOR FINANCIAL OMBUDS......................................5 2.1 GUIDANCE ON GOOD PRACTICE.......................................................................................................... 5 2.2 KEY ATTRIBUTES................................................................................................................................... 5 2.3 EFFECTIVENESS..................................................................................................................................... 6 2.4 INDEPENDENCE...................................................................................................................................... 6 2.5 ACCESSIBILITY........................................................................................................................................7 2.6 FAIRNESS.................................................................................................................................................7 2.7 EFFICIENCY............................................................................................................................................. 8 2.8 OPENNESS.............................................................................................................................................. 8 Current Position in South Africa 3 FINANCIAL MARKET........................................................................................................... 11 3.1 RELATIONSHIP WITH THE FINANCIAL OMBUD SYSTEM............................................................... 11 3.2 FINANCIAL-SECTOR MARKET OVERVIEW........................................................................................ 11 3.3 BANKING AND CREDIT......................................................................................................................... 11 3.4 INSURERS..............................................................................................................................................14 3.5 FRIENDLY SOCIETIES.......................................................................................................................... 16 3.6 RETIREMENT FUNDS AND UNIT TRUSTS..........................................................................................17 3.7 FINANCIAL SERVICES INTERMEDIARIES......................................................................................... 19 TABLE OF CONTENTS | I 4 FINANCIAL REGULATION...................................................................................................21 4.1 RELATIONSHIP WITH THE FINANCIAL OMBUD SYSTEM...............................................................21 4.2 FINANCIAL SECTOR REGULATION ACT.............................................................................................21 4.3 NATIONAL CREDIT ACT....................................................................................................................... 22 4.4 PROPOSED CONDUCT OF FINANCIAL INSTITUTIONS BILL........................................................... 23 5 FINANCIAL OMBUD SCHEMES..........................................................................................27 5.1 FINANCIAL OMBUD SCHEMES........................................................................................................... 27 5.2 SIZE AND SCOPE OF THE FINANCIAL OMBUDS ..............................................................................30 5.3 NATIONAL TREASURY 2017 CONSULTATION..................................................................................31 6 OMBUD OVERSIGHT LEGISLATION................................................................................. 35 6.1 OVERVIEW............................................................................................................................................ 35 6.2 FINANCIAL SERVICES OMBUD SCHEMES ACT................................................................................ 35 6.3 FINANCIAL SECTOR REGULATION ACT............................................................................................ 37 Assessment 7 ASSESSMENT PROCESS................................................................................................... 45 7.1 OVERVIEW............................................................................................................................................ 45 7.2 FACT-FINDING WITH OMBUD SCHEMES.......................................................................................... 45 7.3 FACT-FINDING WITH STAKEHOLDERS............................................................................................. 47 8 EFFECTIVENESS OF SCOPE...............................................................................................57 8.1 CRITERIA............................................................................................................................................... 57 8.2 FINANCIAL PROVIDERS AND ACTIVITIES COVERED...................................................................... 57 8.3 COMPLAINANTS COVERED, INCLUDING RELEVANT NON-CUSTOMERS....................................63 8.4 TIME LIMITS..........................................................................................................................................65 8.5 STAKEHOLDER VIEWS........................................................................................................................68 8.6 CONCLUSIONS.....................................................................................................................................68 9 EFFECTIVENESS OF INTERACTION AND POWERS........................................................ 71 9.1 CRITERIA................................................................................................................................................71 9.2 DEFINITION OF WHAT CONSTITUTES A COMPLAINT.....................................................................71 9.3 RELEVANT OBLIGATIONS FOR PROVIDERS.................................................................................... 72 9.4 REFERRALS BY OMBUD SCHEMES TO PROVIDERS....................................................................... 75 9.5 REDRESS A FINANCIAL OMBUD CAN AWARD................................................................................. 76 9.6 EFFECT AND ENFORCEMENT OF FINANCIAL OMBUD DECISIONS.................................................77 9.7 STAKEHOLDER VIEWS........................................................................................................................80 9.8 CONCLUSIONS.....................................................................................................................................80 10 INDEPENDENCE.................................................................................................................. 83 10.1 CRITERIA...............................................................................................................................................83 10.2 BANKING OMBUD................................................................................................................................ 84 10.3 CREDIT OMBUD....................................................................................................................................86 II | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 10.4 LTI OMBUD............................................................................................................................................88 10.5 STI OMBUD...........................................................................................................................................90 10.6 JSE OMBUD...........................................................................................................................................93 10.7 FAIS OMBUD.........................................................................................................................................93 10.8 PFA......................................................................................................................................................... 94 10.9 STAKEHOLDER VIEWS........................................................................................................................96 10.10 CONCLUSIONS.....................................................................................................................................96 11 ACCESSIBILITY................................................................................................................. 103 11.1 CRITERIA.............................................................................................................................................103 11.2 FRAGMENTATION..............................................................................................................................103 11.3 VISIBILITY........................................................................................................................................... 104 11.4 ACCESSIBILITY...................................................................................................................................106 11.5 REGIONAL DIFFERENCES..................................................................................................................108 11.6 STAKEHOLDER VIEWS......................................................................................................................108 11.7 CONCLUSIONS................................................................................................................................... 110 12 FAIRNESS............................................................................................................................113 12.1 CRITERIA..............................................................................................................................................113 12.2 INFORMAL, EASY-TO-UNDERSTAND, AND FLEXIBLE PROCESS.................................................113 12.3 PROCEDURAL FAIRNESS...................................................................................................................115 12.4 BASIS OF DECISION............................................................................................................................116 12.5 COMPLAINT OUTCOMES...................................................................................................................118 12.6 APPEAL MECHANISMS.......................................................................................................................119 12.7 STAKEHOLDER VIEWS...................................................................................................................... 122 12.8 CONCLUSIONS ................................................................................................................................... 123 13 EFFICIENCY........................................................................................................................127 13.1 CRITERIA............................................................................................................................................. 127 13.2 EFFICIENT AND DOCUMENTED COMPLAINT-HANDLING PROCESSES..................................... 127 13.3 RESOURCES FOR TIMELY RESOLUTION OF CASES......................................................................130 13.4 APPROPRIATE SKILLS AND EXPERTISE OF CASE-HANDLING STAFF........................................131 13.5 ROBUST QUALITY ASSURANCE OF THE SERVICE.........................................................................131 13.6 CLEAR PERFORMANCE AND SERVICE STANDARDS THAT ARE PUBLICLY REPORTED.......... 132 13.7 PERIODIC INDEPENDENT REVIEWS................................................................................................ 133 13.8 CONSISTENCY OF APPROACH ACROSS OMBUD SYSTEM.......................................................... 133 13.9 STAKEHOLDER VIEWS...................................................................................................................... 134 13.10 CONCLUSIONS................................................................................................................................... 134 14 OPENNESS..........................................................................................................................137 14.1 CRITERIA............................................................................................................................................. 137 14.2 ANNUAL REPORT............................................................................................................................... 137 14.3 OTHER PUBLISHED INFORMATION................................................................................................. 139 14.4 CASE-HANDLING INFORMATION AND DATA................................................................................. 139 TABLE OF CONTENTS | III 14.5 COMMUNICATING WITH THE FINANCIAL REGULATORS............................................................ 140 14.6 STAKEHOLDER VIEWS.......................................................................................................................141 14.7 CONCLUSIONS....................................................................................................................................141 15 OMBUD COUNCIL............................................................................................................. 143 15.1 CRITERIA............................................................................................................................................. 143 15.2 EMERGING POSITION........................................................................................................................ 143 15.3 INDEPENDENCE.................................................................................................................................. 144 15.4 EFFECTIVENESS................................................................................................................................. 145 15.5 STAKEHOLDER VIEWS...................................................................................................................... 146 15.6 CONCLUSIONS....................................................................................................................................147 16 ASSESSMENT SUMMARY............................................................................................... 149 16.1 OVERVIEW.......................................................................................................................................... 149 16.2 CONCLUSIONS ...................................................................................................................................150 Detailed Recommendations 17 RECOMMENDATIONS FOR REFORM.............................................................................. 159 17.1 OPTIONS FOR REFORM..................................................................................................................... 159 17.2 A NEW MODEL.....................................................................................................................................161 17.3 RECOMMENDATIONS........................................................................................................................ 163 Appendixes APPENDIX A: OVERVIEW OF OMBUD SYSTEM DATA............................................................................... 185 APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES ....................................................... 189 APPENDIX C: ISSUES PAPER FOR STAKEHOLDERS................................................................................. 217 APPENDIX D: LIST OF STAKEHOLDERS THAT RESPONDED TO THE ISSUES PAPER........................... 221 APPENDIX E: COMPLAINT DEFINITIONS....................................................................................................223 APPENDIX F: OVERVIEW OF COMPLAINT-HANDLING PROCESSES OF OMBUD SCHEMES............... 227 APPENDIX G: IMPLEMENTATION OF THE PROPOSED NEW OMBUD SYSTEM......................................239 ENDNOTES.............................................................................................................................. 247 LIST OF FIGURES Figure A. Structure before the Recommended Reforms....................................................................XXVI Figure B. Structure after the Recommended Reforms.....................................................................XXVII Figure G. Outline Transition Flowchart, Showing Where Legislation Is Required.................................................................................................................................240 LIST OF TABLES Table C. Key to Detailed Recommendations.....................................................................................XXVII Table 3A. Financial Inclusion ......................................................................................................................12 Table 3B. Top 10 Banks in South Africa.....................................................................................................13 Table 3C. Distribution of Credit Provided in Fourth Quarter, 2019.......................................................13 Table 3D. Top 10 Long-Term Insurers in South Africa .............................................................................14 IV | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Table 3E. Top 10 Short-Term Insurers in South Africa............................................................................15 Table 3F. Top 20 Friendly Societies in South Africa............................................................................... 16 Table 3G. Top 10 Retirement Funds in South Africa................................................................................17 Table 3H. Retirement Funds: Number of Funds by Administrator on March 31, 2019........................................................................................................................... 18 Table 3I. Top 10 Unit-Trust Managers in South Africa.......................................................................... 18 Table 3J. Categories of Financial Service Providers Registered under the FAIS Act................................................................................................................................. 19 Table 5A. Key Features of the Financial Ombud Schemes in South Africa.......................................... 29 Table 5B. Summary of the Activities of the Financial Ombuds for 2019.............................................30 Table 7A. Summary of Stakeholder Comments on Key Themes .......................................................... 49 Table 7B. Summary of Key Themes in Comments on 2017 NT Reform Options................................ 52 Table 8A. Providers Covered by Existing Ombud System...................................................................... 57 Table 8B. Products Covered by Existing Ombud System....................................................................... 61 Table 8C. Complaints Referred between Ombud Schemes................................................................... 62 Table 8D. Customers Covered by Existing Ombud System....................................................................63 Table 8E. Whether Prospective Customers Are Covered.......................................................................65 Table 8F. Other Non-Customers Covered................................................................................................65 Table 8G. Time Limits in the Existing Ombud System............................................................................66 Table 9A. Premature Complaints Referred by Ombud Schemes to Financial Providers..................................................................................................................... 75 Table 9B. Redress Provisions in the Existing Ombud System............................................................... 76 Table 9C. Illustration of Differences: Complaint about Loan Plus Advised Sale of Credit Insurance............................................................................................................ 78 Table 9D. Effect and Enforcement of a Financial Ombud Final Decision—Overview......................... 78 Table 9E. Effect and Enforcement of a Financial Ombud Final Decision—by Scheme....................... 79 Table 10A. Independence—Company/Association/Statutory Body......................................................96 Table 10B. Independence—Board/Council................................................................................................. 97 Table 10C. Independence—Ombud..............................................................................................................98 Table 10D. Independence—Budget/Funding..............................................................................................99 Table 11A. Visibility of the Existing Ombud System.............................................................................. 105 Table 11B. Ways of Contacting Existing Ombud Schemes....................................................................106 Table 11C. Percentage of Population Who Speaks English Inside/Outside Home............................. 107 Table 11D. Complaint Distribution Compared to Population Distribution (1 of 2).............................109 Table 11E. Complaint Distribution Compared to Population Distribution (2 of 2)............................ 110 Table 12A. Decision-Making Criteria of Each Existing Ombud Scheme................................................116 Table 12B. Complainant Achieved a Better Outcome Than That Offered by Financial Provider, 2018–19....................................................................................................119 Table 12C. Comparison of Review, Reconsideration, and Appeal Mechanisms...................................119 Table 12D. Bindingness/Review/Reconsideration/Appeal ....................................................................121 Table 13A. Time Limits for Financial Providers to Respond.................................................................. 128 Table 13B. Staffing, Costs, and Time Frames in 2019........................................................................... 133 Table 14A. Contents of Ombud Schemes Annual Reports..................................................................... 138 TABLE OF CONTENTS | V ACKNOWLEDGMENTS The technical assistance for this diagnostic has The team appreciates the cooperation and been provided as part of the South Africa Financial collaboration of the South African authorities, Sector Development and Reform Program including the National Treasury and the Financial undertaken by the World Bank Group and funded Sector Conduct Authority. The team also thanks the by the Swiss State Secretariat for Economic Affairs. current financial ombud schemes in South Africa and The objective of the Financial Sector Development their stakeholders for their assistance and support— and Reform Program is to assist the South African including their readiness to provide information and Government in strengthening financial stability and to answer many questions. improving financial inclusion through analytical and advisory services. The team is grateful to the peer reviewers for the report—Gian Boeddu (Senior Financial Sector This diagnostic report was prepared by a World Specialist), Nicola Sladden (Banking Ombudsman Bank Group Finance, Competitiveness & Innovation for New Zealand), and Gerhard Coetzee (Lead Global Practice team that was jointly led by Nina Financial Sector Specialist)—for their feedback and Mocheva (Senior Financial Sector Specialist) comments. and Claudia Meek (Financial Sector Specialist), included David Thomas (Senior Alternative Dispute Resolution Consultant) and Shane Tregillis (Senior Alternative Dispute Resolution Consultant), and was overseen by Julian Casal (Senior Financial Sector Economist). ACKNOWLEDGMENTS | VII GLOSSARY ADR alternative dispute resolution (out-of-court redress) ASIC Australian Securities and Investments Commission Banking Ombud Ombudsman for Banking Services1 BASA Banking Association South Africa Case An unresolved complaint against a financial provider, which has been referred to a financial ombud scheme COFI Bill (September 2020 draft of proposed) Conduct of Financial Institutions Bill2 Complainant Someone who makes a complaint to a financial provider or refers a complaint to a financial ombud scheme Complaint An oral/written expression of dissatisfaction made to a financial provider related to its services or its complaint-handling process, where there has been some loss or material inconvenience to the complainant and a response or resolution is explicitly or implicitly expected Conciliation The financial ombud service actively reviewing the circumstances (as an independent third party) and helping the complainant and the financial provider to agree on a fair outcome (sometimes called mediation) Consumer Someone who buys a financial service mainly for personal or household use, rather than for use in their trade, business, or profession. It also includes small businesses, if the financial ombud scheme covers complaints from them. Credit Ombud Office of the Credit Ombud3 Direction A requirement, issued by an ombud, that a financial provider must put things right by doing, or not doing, something (specified by the ombud) in relation to a particular complainant Enquiry A contact with a financial ombud scheme that requests information EU European Union FAIS Act Financial Advisory and Intermediary Services Act (Act 37 of 2002)4 FAIS Ombud Office of the Ombud for Financial Services Providers5 FCA Financial Conduct Authority (in the United Kingdom) Financial provider A provider of financial services or credit GLOSSARY | IX FM Act Financial Markets Act (Act 19 of 2012)6 FOS Financial Ombudsman Service (in the United Kingdom) FSB Financial Services Board (predecessor of the Financial Sector Conduct Authority) FSB Act Financial Services Board Act (Act 97 of 1990)7 FSCA Financial Sector Conduct Authority8 FSDRP South Africa Financial Sector Development and Reform Program FSOS Act Financial Services Ombud Schemes Act (Act 37 of 2004)9 FSOS Council Financial Services Ombud Schemes Council (under the Financial Services Ombud Schemes Act) FSP financial service provider FSR Act Financial Sector Regulation Act (Act 9 of 2017)10 FTE Full-time equivalent (staff numbers) G20 Group of 20 Finance Ministers and Central Bank Governors INFO Network International Network of Financial Services Ombudsman Schemes11 JSE Johannesburg Stock Exchange JSE Ombud Johannesburg Stock Exchange Ombud12 LTI Ombud Ombudsman for Long-Term Insurance13 Mediation The financial ombud scheme actively reviewing the circumstances (as an independent third party) and helping the complainant and the financial provider to agree on a fair outcome (sometimes called conciliation) MIO Motor Industry Ombud NC Act National Credit Act (Act 34 of 2005)14 NCR National Credit Regulator15 NFO National Financial Ombud (proposed new body; see chapter 17) NT National Treasury OECD Organisation for Economic Co-operation and Development16 Ombud A person (or people) in a financial ombud scheme, whatever their job title, with power to make final decisions on cases (sometimes called an ombudsman or adjudicator) PA Prudential Authority (within the South African Reserve Bank)17 PAJ Act Promotion of Administrative Justice Act 3 of 200018 PFA Pension Funds Adjudicator19 X | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC PF Act Pensions Funds Act of 1956 (Act 24 of 56), as amended20 PFM Act Public Finance Management Act (Act 1 of 1999)21 Premature complaint A complaint that the complainant refers to a financial ombud scheme without first having raised it with the financial provider R South African rand Redress Compensation (payable by the financial provider) or other remedies awarded by a financial ombud scheme in favor of a complainant RFO Retirement Funds Ombud (proposed new name; see chapter 17) SAIA South African Insurance Association SARB South African Reserve Bank22 STI Ombud Ombudsman for Short-Term Insurance23 WBG World Bank Group GLOSSARY | XI LEGISLATION CONSULTED COFI Bill (September 2020 draft of proposed) Conduct of Financial Institutions Bill24 FAIS Act Financial Advisory and Intermediary Services Act (Act 37 of 2002)25 FM Act Financial Markets Act (Act 19 of 2012)26 Friendly Societies Act Friendly Societies Act (Act 25 of 1956)27 FSB Act Financial Services Board Act (Act 97 of 1990)28 FSOS Act Financial Services Ombud Schemes Act (Act 37 of 2004)29 FSR Act Financial Sector Regulation Act (Act 9 of 2017)30 NC Act National Credit Act (Act 34 of 2005)31 PAJ Act Promotion of Administrative Justice Act 3 of 200032 PF Act Pensions Funds Act of 1956 (Act 24 of 56) as amended33 PFM Act Public Finance Management Act (Act 1 of 1999)34 Prescription Act Prescription Act (Act 68 of 1969)35 LEGISLATION CONSULTED | XIII INTRODUCTION BACKGROUND In order to make progress on that work, the NT and Financial Sector Conduct Authority (FSCA) The Finance, Competitiveness & Innovation Global requested that the WBG undertake this diagnostic Practice of the World Bank Group (WBG) aims report into South Africa’s financial-sector ombud to help countries build financial systems that are system and to make recommendations. deep, diversified, inclusive, efficient, and stable— essential to promoting economic growth, reducing SCOPE OF THIS REPORT poverty, and increasing shared prosperity. This diagnostic review One core activity is supporting national authorities to achieve their objectives for financial inclusion, by • Evaluates the current financial-sector ombud supporting policy, legal, regulatory, and supervisory system in South Africa; reforms in areas such as financial consumer protection, including financial-sector alternative • Compares it against international good practice; dispute resolution (ADR). and Through the South Africa Financial Sector • Recommends reforms to provide good-quality Development and Reform Program, the WBG outcomes and good value for money for the future. is supporting the national reform process, which This diagnostic does not cover internal complaint includes achieving an efficient and effective ADR handling by financial providers (except where it system, so that financial customers can hold financial interacts with the ombud system). institutions to account if there is a dispute. The financial-sector ombud system comprises the ADR in the South African financial sector is provided following seven ombud schemes: through an ombud system. A 2017 National Treasury (NT) consultation policy document—A Known and • Two statutory ombud schemes: Trusted Ombud System for All (2017 Consultation Document)—did the following: - FAIS Ombud = Office of the Ombud for Financial Services Providers • Described the historic development of the financial-sector ombud system - PFA = Pension Funds Adjudicator • Explained reforms to the system through the • Five industry ombud schemes: Financial Sector Regulation Act 9 of 2017 (FSR - Banking Ombud = Ombudsman for Banking Act) Services • Described three possible alternative models - Credit Ombud = Office of the Credit Ombud • Identified that further research should be - LTI Ombud = Ombudsman for Long-Term conducted into the current operation of the system Insurance INTRODUCTION | XV - STI Ombud = Ombudsman for Short-Term - Not fully resolve the respective roles of the Insurance NCR and FSCA concerning conduct matters in relation to provision of credit. - JSE Ombud = Johannesburg Stock Exchange Ombud METHODOLOGY In 2019, the financial ombud system as a whole The diagnostic involved both primary and secondary • Handled 92,273 enquiries; research plus extensive consultations with the existing ombud schemes and key stakeholders • Received 80,512 complaints; through video conferences and e-mail. The • Opened 42,089 new cases; and COVID-19 pandemic prevented the WBG team from visiting the existing financial ombud schemes • Closed 38,792 cases. and speaking to stakeholders face to face. The system also includes a dedicated oversight The diagnostic carefully considered the following: regulator for financial ombud schemes: the newly established statutory Ombud Council. • Prior research • Responses to the 2017 Consultation Document LEGISLATIVE BACKGROUND • Published documentation relating to the ombud The diagnostic took into account the relevant system legislation, and the following in particular: • Responses from the ombud schemes to a detailed • The Financial Sector Regulation Act 9 of 2017 questionnaire and many follow-up questions (FSR Act), which introduced major changes to the regulation of financial services, and created • Unpublished scheme documentation and process manuals supplied by the ombud schemes - The Prudential Authority (PA), a juristic person operating within the administration of the South • Two rounds of detailed video discussions with African Reserve Bank; ombud schemes - The FSCA as conduct regulator; and • Responses from stakeholders to an issues paper - The Ombud Council as oversight regulator of • A round of detailed video discussions with financial ombud schemes. relevant stakeholders • The National Credit Act 34 of 2005 (NC Act), The WBG team is grateful to all respondents. They which established the National Credit Regulator were generous with their time, notwithstanding (NCR) to regulate the provision of credit by credit the difficulties caused to their operations by the providers. pandemic. • The proposed Conduct of Financial Institutions The diagnostic also took the following into account: Bill36 (COFI Bill), which will • The specific context in which the ombud system - Significantly change existing regulatory operates in South Africa, including the challenges boundaries; faced in relation to financial inclusion - Affect the legislative underpinnings, jurisdiction, • Existing and proposed reforms in the financial and role of the FAIS Ombud; but sector described in documents shared with the WBG or publicly available XVI | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • The wide range of published international STRUCTURE OF THIS REPORT guidance on good practice relevant to a financial ombud system The Summary of Key Findings and Recommenda- tions, which follows this introduction, is based on The key attributes distilled from that international detailed findings and recommendations set out in good-practice guidance, which this report uses as the following chapters: benchmarks to evaluate the existing ombud system and potential reforms, comprise the following: • The first section (Financial Ombud System Role and Standards) comprises chapters 1 and 2 and • Effectiveness describes the role of a financial ombud system, the Consistent redress in all appropriate sectors of available international guidance on good practice financial services for financial ombuds, and the key attributes that • Independence can be distilled from that guidance. Visibly objective, impartial, and unbiased • The second section (Current Position in South • Accessibility Africa) comprises chapters 3 to 6 and describes the Well known, easy to use, and free for consumers financial market in South Africa, the arrangements for financial regulation, the existing ombud • Fairness system, and the legislation for the oversight of the Processes and decisions that are visibly fair and ombud system. equitable • The third section (Assessment) comprises • Efficiency chapters 7 to 16 and describes the assessment Good quality of service and value for money process and sets out detailed assessments of the different aspects of the existing system against the • Openness criteria distilled from international good-practice Clear and open to scrutiny about its work and the guidance. lessons that can be drawn from it • The fourth section (Detailed Recommendations) comprises chapter 17 and sets out detailed recommendations for reform. INTRODUCTION | XVII SUMMARY OF KEY FINDINGS AND RECOMMENDATIONS KEY FINDINGS • Has rules and processes that incorporate fair and equitable principles. This report focuses on the role and reform of the The professionalism and commitment of those financial-sector ombud system in South Africa. In involved with the work and governance of the assessing the financial-sector ombud system, this existing schemes are well respected by stakeholders. report takes into account both international good practice and local conditions in South Africa. Downsides Financial ombuds are well established in many Current arrangements, based on sector-specific jurisdictions throughout the world. They aim to do schemes plus piecemeal statutory reforms, have the following: resulted in an ombud system that is fragmented and lacks overall coherence. The more deeply the WBG • Resolve complaints fairly, using all appropriate team looked, the more complex and inconsistent it means appeared. • Operate flexibly and with minimum formality Issues include the following: • Be accessible to all consumers • Jurisdictional boundaries that are unclear • Work with a wide range of industry, community, • Overlaps in jurisdiction, including between regulatory, and governmental bodies industry and statutory ombud schemes They form part of the arrangements to underpin • Gaps in coverage and mismatches with new consumer confidence in financial services. When products effectively organized, they are well suited to support broader efforts to enhance financial inclusion in • Significantly differing rules, eligibility, processes, addressing structural issues for vulnerable and powers, and appeal mechanisms across schemes disadvantaged consumers. • Differing governance arrangements Upsides • Differing funding, with some duplication of levies The current financial ombud system in South Africa provides an important ADR service for • Outreach and accessibility activities that, because many consumers of financial services, as detailed in they are uncoordinated, are less effective in subsequent chapters. In a complex environment, the supporting financial inclusion existing system Gaps, overlaps and inconsistencies create the • Provides free access to out-of-court dispute following: resolution for many consumers; • Confusion for consumers and consumer advisers, • Is generally seen by stakeholders as independent, and delay— about 12 percent of complaints have professional, expertise based, and engaged; and to be referred from one ombud scheme to another SUMMARY OF KEY FINDINGS AND RECOMMENDATIONS | XIX • Serious risk that some consumers may be so Who Can Use the Ombud System discouraged by the complexity that they may be Who is allowed to refer a complaint to the different deterred from pursuing their complaint at all or ombud schemes varies significantly. may give up prematurely • Consumers: • Additional work for financial providers—training staff, understanding the requirements applicable to - All of the ombud schemes will accept complaints different ombud schemes, and correct signposting from consumers who have become customers of the financial providers. • Additional work for the initial stages of ombud schemes—training staff, understanding eligibility/ - Only two of the ombud schemes, however, will limits/gaps/overlaps, and referring complainants take complaints from prospective customers to other schemes (for example, about discrimination); the other five ombud schemes will not. The fragmentation of the system hampers improvements in visibility and accessibility, • Businesses: especially for geographically remote and disadvantaged consumers, and it hampers - Four of the ombud schemes take complaints developments in staff training and operational from businesses of any size. systems. - One of the ombud schemes takes complaints The issues are analyzed in detail in chapters 8 to 16. from unincorporated businesses of any size but The following are just examples. has a R 1 million turnover limit for incorporated businesses. Scope of Ombud System - One of the ombud schemes takes complaints Overlaps and gaps are created because the scope from businesses of any size in its main of some ombud schemes depends on the activity jurisdiction but has an R 8 million turnover involved and the scope of other ombud schemes and net assets limit for businesses in its backup depends on the type of financial provider involved. jurisdiction. • Most mixed complaints (partly about the product - One of the ombud schemes has an R 10 million and partly about the advice to buy it) fall into the turnover limit for all businesses. jurisdiction of two different ombud schemes— one covers the advice, while the other covers the What Constitutes a Complaint product. Differently worded definitions of what constitutes a • Complaints about bundled products (for example, complaint—used by different ombud schemes and a loan coupled with loan insurance) may fall by regulators—create gaps, could lead to confusion, across the different jurisdictions of two or three and make inconsistent application more likely. ombud schemes, or parts of them may not be Despite the extent of poor literacy levels in South covered by an ombud scheme at all. Africa, none of the definitions provides that an oral • Some financial products may be covered by one complaint has the same validity as a written complaint. to five different ombud schemes or not be covered by an ombud scheme at all. Provision of credit What Redress Can Be Awarded is outside the gap-filling jurisdiction of the FAIS There are significant differences and gaps in the Ombud (so the only gap filling is by the NCR). redress that the different financial ombuds can award, even relating to one product or arising out of a single transaction. XX | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Power to award compensation and/or make common brand, including an enhanced program to a direction (requiring the provider to do promote better access to the ombud system across something).37 all socioeconomic groups. - One of the ombud schemes can award All of the ombud schemes (apart from the JSE compensation for loss but cannot make a Ombud) are free to consumers. But there are direction. significant differences, and some deficiencies, in the ways in which complaints can be submitted to the - Two cannot award compensation for loss but different schemes, and in whether or not a signature can make a direction. or written confirmation is required. - Four can do both. The amount of help available to vulnerable/ • Consequential loss: disadvantaged/disabled complainants is variable (and, in some instances, lacking). Most but not all - Four of the ombud schemes can award redress schemes make some ad hoc provision for them— for consequential loss. but documented policies and procedures required to train staff appropriately are lacking. - Three cannot award such redress. The different ombud schemes do not collect • Distress/inconvenience: socioeconomic data on the consumers who use them, so it is difficult to identify what types of consumers - Three of the ombud schemes can award redress access (or are unable to access) the ombud system. for material distress/inconvenience. But there appear to be wide regional disparities. - Two of the ombud schemes can award such There are striking differences in the numbers of redress up to a maximum of R 50,000. complaints received from different provinces. - Two cannot award such redress. For example, the ombud system received almost four times as many complaints per one million of • Maximum amount of redress that the ombud population from Gauteng than from Limpopo. schemes can award: The multiplicity of official languages in South Africa - One ombud scheme has a maximum of R presents challenges for all agencies that deal with 800,000. the public, including the ombud system. English is the principal language used in financial products, - One ombud scheme has a maximum of R 2 but they are promoted in local languages. million. Only 8.1 percent of the population of South Africa - One ombud scheme has a maximum of R 3.5 speaks English at home, and only 16.6 percent million or R 6.5 million (depending on the speaks English outside home. All of the existing product). ombud schemes work primarily in English. Their - Four ombud schemes have no maximum limit. facilities for dealing with other languages are variable and largely ad hoc. Visibility and Accessibility Openness The ombud schemes have increased their efforts to promote awareness but still do so largely separately. The ombud schemes are generally open to public Consequently, the visibility and accessibility of the scrutiny about the work that they have done, though ombud system are less than they would be if the they are less open publicly about their proposed resources were combined and operated behind a plans for future changes and about their sharing of information with regulators. SUMMARY OF KEY FINDINGS AND RECOMMENDATIONS | XXI Differences in content and terminology in published those reforms should be. There are legitimate data and information, however, hamper system-wide concerns about disruption during the transition comparisons and conclusions—making it difficult to to a reformed system—and that changes might compare the performance of the different parts of mean less independence, more bureaucracy, the ombud system and to analyze its effectiveness less professionalism and expertise, and loss of as a whole. stakeholder support. These differences also make it more difficult to In recommending reform, the WBG team has reduce the causes of complaints and improve not sought to transplant a model from another consumer outcomes through identification of trends jurisdiction. Rather, the team has applied the across the financial system, including new and principles of good ombud practice to the particular emerging issues. circumstances found in South Africa—including the existence of a sophisticated financial sector but also Ombud Council a lack of financial inclusion among some segments There is a continuing role for a reformed Ombud of the population. Council as an oversight regulator of the ombud The WBG team is not starting with a blank sheet system. But its current governance is not sufficiently of paper; there is already a system in place. So this independent to act as an intrusive regulator of report places a high priority on the importance of independent ombud schemes, and still less to become keeping the ombud system operational (retaining the governing body of a consolidated system. existing personnel and expertise) while retaining The title “Chief Ombud” is likely to create confusion the stakeholder support that underpins it through the over the true role and responsibilities of the chief transition to a reformed system. executive of the Ombud Council. The title should This report seeks to avoid the risks of either a “big be replaced by another title more consistent with the bang” or an incremental approach that are sometimes role—such as Chief Executive or Director-General. presented as alternatives. Both, in their own ways, risk The functions and powers designed to encourage disrupting the current operation of the system, loss of standardization and cooperation may be appropriate expertise, and a failure to properly implement reforms. for the currently fragmented system but will become Rather, we propose early action to set clear unnecessary (and cease to be cost effective) if there directions for the reforms and to put in place a clear is a significant consolidation of the ombud system, independent governance framework to manage a as this report recommends. staged implementation plan with a clear timetable— Some of the Ombud Council’s intrusive/coercive to reduce uncertainty for the current schemes and powers over ombud schemes may damage the their staffs and manage the transition risk. perceived independence of the ombud system. Previous Proposals KEY RECOMMENDATIONS The 2017 Consultation Document discussed the following three potential models: The development of the individual financial ombud schemes has involved many success stories, but • Model 1: A hybrid model building on current FSR the overall system and its components will need Act provisions significant changes to make it fit for purpose now • Model 2: A centralized model, establishing a and in coming years. single statutory ombud scheme Most stakeholders acknowledge the need for • Model 3: Industry ombuds with strong oversight reform, but there is little consensus on what by the Ombud Council XXII | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC The report does not recommend adoption of any • Additionally, stakeholders consider that statutory of these three models. While each model has bodies tend to be bureaucratic, inflexible, some benefits, the best of which we have sought and more expensive. The 2017 Consultation to retain in our recommendations, they all have Document conceded that statutory ombuds show significant disadvantages. This is confirmed by significantly higher costs, explained to some the divergent stakeholder comments we received extent by the statutory inflexibility afforded to on the three models. running these schemes, especially governance requirements imposed by the PFM Act. Models 1 and 3 retain multiple schemes with an overlay of more consistent standards and rules, • It is essential that there is a smooth transition along with an enhanced single entry point that from the existing system to the new one, in order would direct complainants to one or more existing to ensure that complaints from consumers are schemes. still being handled throughout the change, and to preserve existing knowledge, expertise, and • We do not consider this to be a viable end stakeholder goodwill. point. The shared call center established by the existing schemes failed in practice. International • Even in countries where a fully statutory ombud experience is that getting real consistency across was established (such as the United Kingdom), separate schemes is unlikely to be possible, and a smooth transition would have been impossible that just adding a single entry point on top of the without the active support of stakeholders current multiple-scheme structure will not be (including the governing bodies of the existing effective. ombud schemes). • Recently, four of the industry schemes began • Forcing existing schemes into a fully statutory discussions about moving toward a gradual merger ombud would not secure the cooperation of of the four schemes between 2021 and 2024. We essential stakeholders. Without stakeholder do not consider that this gradualist approach, cooperation, there is a significant risk of a worse which will not tackle some fundamental issues at outcome—because the handling of cases would the beginning of the process, provides a sufficient not proceed smoothly through the transition and platform for reform. knowledge, expertise, and goodwill would be lost. Model 2 was a single statutory scheme. Although Recommendations we consider consolidation an important element We recommend a new model that builds on the of the recommended reforms, we do not support strengths of the existing ombud system; avoids consolidation through a single statutory scheme. the risks and disadvantages of the models in the • While a single statutory ombud scheme might 2017 Consultation Document; and addresses the (at first sight) appear straightforward as a policy complexity and other weaknesses we have identified. option, we consider that it would not be consistent Detailed recommendations are set out in chapter 17. with international good practice; it lacks critical They are interrelated and should be considered as a stakeholder support and poses material risks to a whole. Without a coherent approach, the reformed smooth transition to a new reformed ombud system. system would be unbalanced. While we have • The framework for statutory ombuds in South set out a possible phased approach, we have not Africa (with no independent governing body recommended an interim set of reforms. and appointment of the ombud by a politician) • The reforms will work to create a system that lacks independence—and, in view of past events, works across sectors only if there are clear stakeholders in South Africa are very cautious decisions at the outset about what the end point about appointments made by politicians. looks like. SUMMARY OF KEY FINDINGS AND RECOMMENDATIONS | XXIII • In part, the piecemeal reforms of the past have • The NFO will need to obtain recognition from resulted in the complexity and lack of coherence the Ombud Council. It will require some statutory of the current system described in this report. underpinning (through extending the powers of the Ombud Council) in order to ensure that its • Once a policy decision on the end point of a coverage is comprehensive. reformed ombud system is made, the transition can take place in the phases described below, • The NFO would handle all complaints that seek with earlier progress on those aspects that do not redress from providers of financial services require statutory changes. including credit, to enable the NCR and the FSCA to focus on dealing with enforcement, Broadly, the report recommends the following: systemic sector-wide issues, and broader • A new National Financial Ombud financial-literacy efforts. • A reformed Retirement Funds Ombud Reformed Retirement Funds Ombud39 • The statutory PFA, reformed and renamed, • A modified Ombud Council should continue to have jurisdiction over pension New National Financial Ombud funds. It should add to its jurisdiction complaints about advice/intermediary services concerning • A new National Financial Ombud (NFO), retirement funds where the service is provided by independent of both industry and government, any person or entity that is otherwise within its should be established to cover the whole of the jurisdiction. financial sector (including credit)38—apart from retirement funds (as explained below). • Retaining a separate scheme for retirement funds at this stage will avoid adding further • It should absorb the work of all the industry ombud complexity to what will already be a complex schemes (the Banking, Credit, LTI, STI, and JSE transition. This can be reviewed five years after Ombuds), plus that of the statutory FAIS Ombud, full implementation of the NFO. and be extended to cover all financial providers regulated by the PA/FSCA and NCR. • The major issue in the retirement-funds sector is employers not paying over contributions. This is • The consolidation should be managed by the new primarily an issue for regulators that will not be NFO board—which should be appointed at the solved by changing the ombud system—and it earliest possible opportunity, so that it can establish would be helpful to focus on resolving this issue the NFO, oversee the consolidation process, and before focusing on any possible consolidation make any necessary design decisions. with the NFO. • The NFO should be demonstrably independent— • Pending future consideration of its relationship not only from the industry but also from the with the NFO, the PFA’s governance should be government. It should have the governance enhanced in order to underpin its independence, arrangements set out in our recommendations and including creation of an independent board, with preferably take the corporate form of a nonprofit power to appoint the ombuds. company without members. • The PFA should be renamed “Retirement Funds • The NFO should not be a statutory body. This Ombud” (RFO). The name change (contingent will make it easier to undertake the transition, on the recommended governance changes) will retain the flexibility to adapt to future changing make its role and range of processes clearer to circumstances and products, retain the support of consumers and also facilitate working jointly with existing stakeholders, and avoid bureaucracy. the NFO to enhance the outreach and accessibility of the ombud system. XXIV | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Modified Ombud Council Further detailed work on the operational details of transition will be required once a formal policy • The existing statutory provisions relating to the decision is made on the main reform proposals. Ombud Council should be modified in order to However, we contemplate that from the time a formal increase its independence, give its chief executive policy decision is made, transition will involve the a name more appropriate than “Chief Ombud,” and following three stages (with the following indicative modify its powers in order to facilitate (and then time frames): adapt to) the new structure that is recommended. • Stage 1 (within six months): Establish the • This includes giving it powers that will enable it NFO board—with power to decide on the new to authorize the new NFO to handle complaints constitution, single rulebook, funding model, about advice/intermediary services and give the operational systems, and transitional plans. Once NFO automatic jurisdiction, as well as making this has been done, seek approval for the NFO binding decisions of recognized ombud schemes from the Ombud Council. enforceable in the same way as a court judgment. • Stage 2 (within 12 months): Progressively • It also includes reviewing its statutory powers transfer staff and assets to the NFO. As in other with a view to repealing any intrusive or coercive countries that have undergone a similar process, powers that are no longer appropriate or cost this may involve ombuds and staff holding effective in the light of the reform of the ombud dual appointments for a period so the NFO can system arising from this report. continue the work of the current schemes until the Transition formal handover. A carefully planned and managed transition to a • Stage 3 (within two years): Formal handover to reformed system is crucial to achieving the benefits the NFO, which would handle all new complaints of reform without disrupting the ongoing work of under the NFO rules, process, and powers. handling complaints. Additional clarification on the implementation of the • The reform process is inherently complex. It is proposed new ombud system—including the order important to retain the expertise of all the existing of events and the many steps that do not require personnel and to keep broad stakeholder support legislation—is set out in appendix G to this report. for the work of the ombuds. The existing ombud schemes have been living in the • It will help to minimize uncertainty if as much as shadow of proposed reforms for a long time. To their possible can be done early—with cooperation from credit, they have continued to focus on resolving the ombud schemes, under existing legislation, complaints and improving the service they provide. and with the support of the Ombud Council. But early decisions and action on reform are now more pertinent than ever—to avoid creating further • Cooperation would be facilitated if the South uncertainty and destabilizing the system, which African authorities were to share this report in would damage its effectiveness. full with the relevant stakeholders. The WBG may be able to provide further assistance with the Diagrams of Structure before and after transition. the Recommended Reforms • However, some reforms, primarily affecting the Figure A shows the structure before the recommended statutory ombud schemes and the Ombud Council, reforms. Note the following: will ultimately require legislative changes (possibly through the forthcoming COFI Bill). SUMMARY OF KEY FINDINGS AND RECOMMENDATIONS | XXV • There are some differences from figure 3 in the ombud schemes. Once relevant provisions of 2017 Consultation Document (notably the absence the FSR Act come into force, expected on April of new governance committees for the statutory 1, 2022,40 the Pension Funds Adjudicator and ombuds) because the FSR Act did not incorporate FAIS Ombud become the accounting officers all of the provisions expected at the time of the for their schemes. consultation paper. Figure B shows what the structure would be after • The commissioner of the FSCA is currently the the recommended reforms. PFM Act accounting officer for the two statutory Figure A. Structure before the Recommended Reforms Minister of Finance Appoints Ombud Council Minister of Finance PFA Appoints Commissioner and Ombuds Ombud Council FSCA Commissioner FAIS Ombud Accounting Officer until April 30, 2022 Banking Ombud Board Banking Ombud Governance + Appoints Ombud Credit Ombud Council Credit Ombud Governance + Appoints Ombud LTI Ombud Council LTI Ombud Governance + Appoints Ombud Oversight STI Ombud Board STI Ombud Governance + Appoints Ombud JSE JSE Ombud Governance + Appoints Ombud XXVI | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Figure B. Structure after the Recommended Reforms Minister of Finance Appoints Ombud Council Ombud Council RFO Board RFO Governance + Appoints Ombud Oversight NFO Board NFO Governance + Appoints Ombud Key to Detailed Recommendations Table C. Key to Detailed Recommendations No. Recommendation Page General A1 Standard definition of complaints 164 A2 Requirements for financial providers 164 A3 Consequences for financial providers 164 National Financial Ombud (NFO) B1 Establishment 165 B2 Providers covered 165 B3 Products/services covered 165 B4 Complainants covered—consumers and businesses 166 B5 Complainants covered—non-customers 166 B6 Maximum compensation limits 167 B7 Speedy appointment of governing body 167 B8 Corporate form 167 B9 Functions of NFO board 168 B10 Funding 168 B11 Size of NFO board 169 B12 Appointment of initial NFO board members 169 B13 Appointment of subsequent NFO board members 170 B14 Expertise of NFO board 170 SUMMARY OF KEY FINDINGS AND RECOMMENDATIONS | XXVII B15 Basis of complaint resolution 170 B16 Processes and procedures 171 B17 Appeals 171 Retirement Funds Ombud (RFO) C1 Continuation and renaming 172 C2 Jurisdiction 172 C3 Complainants covered—non-customers 172 C4 Governing body 172 C5 Functions of RFO board 172 C6 Size of RFO board 173 C7 Appointment of initial RFO board members 173 C8 Appointment of subsequent RFO board members 173 C9 Expertise of RFO board 173 C10 Basis of complaint resolution 173 C11 Processes and procedures 174 C12 Appeals 174 NFO and RFO D1 Referral of complaints to one another 174 D2 Time limits for complainants 175 D3 Referral of complaints to the provider 175 D4 Redress 175 D5 Effect of an ombud final decision 176 D6 Enforcement of a binding ombud final decision 176 D7 Restrictions on membership of board 176 D8 Terms of appointment of board 177 D9 Functions of ombuds 177 D10 Appointment of ombuds 177 D11 Restrictions of appointment of ombuds 177 D12 Terms of appointment of ombuds 178 D13 Free for complainants 178 D14 Cross-sector points of entry 178 D15 Receiving complaints 178 D16 Accessibility 178 D17 Resources and expertise 179 D18 Performance and quality 179 XXVIII | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC D19 Annual report 180 D20 Quarterly reports 180 D21 Consultation 181 D22 Relations with regulators 181 Ombud Council E1 Modified statutory provisions 181 E2 Appointment of council members 181 E3 Appointment of Chief Ombud 182 E4 Renaming the Chief Ombud 182 E5 Extension to powers 182 E6 Common points of entry to the system 182 E7 Review of powers 182 E8 Reports 182 SUMMARY OF KEY FINDINGS AND RECOMMENDATIONS | XXIX DETAILED FINDINGS AND RECOMMENDATIONS Financial Ombud System Role and Standards 1 ROLE OF A FINANCIAL OMBUD SYSTEM This chapter explains the role and advantages of an effective and efficient financial ombud system in helping to increase consumer confidence in financial services. 1.1 CONSUMER TRUST AND means; operate flexibly and with minimum CONFIDENCE IN FINANCIAL formality; be accessible to all consumers; and work with a wide range of industry, community, SERVICES regulatory, and governmental bodies. Overview • They form part of the arrangements to underpin A growing and efficient market in financial consumer confidence in financial services. services depends on, among other things, When organized effectively, they are well suited consumer confidence. Developing consumer trust to support broader efforts to enhance financial and confidence requires the following: inclusion by addressing structural issues for vulnerable and disadvantaged consumers. • Effective prudential regulation and supervision by a financial regulator to ensure that financial Official Recommendations providers are financially sound and run by fit-and- The high-level principles on financial consumer proper persons protection41 published by the Organisation for Economic Co-operation and Development • Effective conduct-of-business requirements, set (OECD)42 and approved by the G2043 include the by a financial regulator or by an industry code, following: so that financial providers are required to treat consumers fairly Jurisdictions should ensure that consumers have access to adequate complaints handling and • User-friendly ADR, to resolve disputes between redress mechanisms that are accessible, affordable, consumers and solvent financial providers independent, fair, accountable, timely and efficient • A compensation/indemnity system, to provide … Recourse to an independent redress process appropriate protection to customers if a significant should be available to address complaints that are financial provider becomes insolvent not efficiently resolved via the financial service providers’ and authorized agents’ internal dispute • Consumer education/information, to increase resolution mechanisms … consumers’ understanding of relevant financial issues and consumer rights and liabilities The World Bank’s good practices for financial consumer protection44 include the following The form of ADR adopted in South Africa, as recommended good practices: in many countries throughout the world, is an ombudsman system. As requested by the South a. If consumers are unsatisfied with the decision African authorities, this report focuses on the role resulting from the internal complaint handling and reform of that system. at the financial service provider, they should be given the right to appeal, within a reasonable time • Financial ombuds are well established in many frame (for example, 90–180 days), to an out-of- jurisdictions throughout the world. They aim to court ADR45 mechanism that: resolve complaints fairly, using all appropriate 1. ROLE OF A FINANCIAL OMBUD SYSTEM | 1 i. has powers to issue decisions on each case that There are currently six different schemes, each are binding on the financial service provider providing an impartial dispute resolution platform (but not binding on the consumer); that is free to consumers and external to financial institutions. There are many differences in how ii. is independent of both parties and discharges these ombud schemes are established and how they its functions impartially; operate, including the fact that some are established iii. is staffed by professionals trained in the through statute while others are established through subject(s) they deal with; industry initiative. While the system has provided vital assistance in resolving the disputes of many iv. has an adequate oversight structure that customers, it has been identified that there are ensures efficient operations; weaknesses, inconsistences and inefficiencies in its operation that may be hampering the achievement of v. is financed adequately and on a sustainable good customer outcomes. The system is underutilized basis; and is insufficiently known or trusted … vi. is free of charge to the consumer; and These trends support previous research suggesting that South Africans have a low knowledge and is accessible to consumers. vii. understanding of financial ombuds, through the twin b. The existence of the ADR mechanism, its contact challenges of low awareness and access. Awareness details, and basic information relating to its refers to a consumer knowing his or her rights, as procedures should be made known to consumers well as knowing the channels available to exercise through a wide range of means, including when a those rights. Access refers to the ready availability complaint is finalized at the provider level. of services. In other words, even if a consumer wants to exercise his or her rights, there may be c. If the ADR mechanism has a member-based barriers to doing so, like an illiterate person having structure, all financial service providers should to submit a complaint in writing when living in a be required to be members. different province from the complaints center. The effectiveness of outreach initiatives by the ombuds The consultation policy document A Known and is arguably constrained by insufficient budget and Trusted Ombud System for All46 issued by the NT brand fragmentation. includes the following: An empowered consumer can be thought of as Benefits of a Financial Ombud System someone who is able to make informed financial Experience shows that an effective financial decisions and can hold his or her financial institution ombud system benefits not only consumers but to account for poor service or broken commitments. also financial providers and the state. Accountability measures available to consumers should include the ability to have complaints • All of them benefit if consumers have greater against a financial institution fairly and effectively confidence in financial services because they resolved by the institution, and in instances where know that, if anything goes wrong, they will be such resolution isn’t possible, the availability of able to take their dispute to an independent body an alternative impartial third party to resolve the that will resolve the issue quickly and informally, dispute. In South Africa, this is mainly provided without the consumer needing a lawyer. through the ombud system. Effective financial sector • Financial providers benefit because consumers ombud schemes are needed to drive the financial are more likely to buy financial products, the cost sector to serve South Africans better. of resolving disputes with consumers is kept to a minimum, and unscrupulous competitors who act unfairly are held to account. 2 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • The state benefits because redress47 can be • It is free for complainants. provided at minimal cost, feedback from a financial ombud system can help improve future • It handles enquiries48 from both financial regulation, and confident consumers are more consumers49 and financial providers. likely to play their part in helping to develop a • It triages complaints50 from the outset. sound financial market. • Complaints arising from misunderstandings can An effective financial ombud system can fulfill be resolved straightaway. a wider role than the courts. Like the courts, a financial ombud system resolves individual cases. • Many other complaints can be resolved by actively Unlike the courts, a financial ombud system can also facilitating an agreed fair outcome.51 deal with enquiries and proactively share the lessons from its work to help governments, regulators, • Typically, only a minority of cases52 require financial providers, and consumers improve for investigation and a formal decision. the future. A financial ombud system’s role in • The ombud scheme knows what information to underpinning consumer confidence in financial ask for and asks for it. services includes the following: • The ombud scheme decides the case on the basis • Helping to support improvements, and reduce of what is fair in the circumstances. disputes, in financial services • The financial ombud scheme produces an annual • Helping financial providers themselves to resolve report on the cases it has handled. disputes with consumers • The annual report includes recommendations on • Resolving consumer disputes that financial how complaints could be reduced in the future. providers fail to resolve themselves • The financial ombud scheme engages with • Reducing the burden on the courts stakeholders to discuss new and emerging issues. • Increasing financial inclusion by providing a A financial ombud scheme is not a regulator, and it visible and accessible route to redress does not penalize financial providers. 1.2 WHAT A FINANCIAL OMBUD The financial ombud scheme actively investigates SYSTEM DOES the case and uses its specialist knowledge of financial services. This means that the consumer Out-of-Court Redress is not disadvantaged by the financial provider’s greater resources and technical knowledge. Neither A financial ombud system provides independent, the consumer nor the financial provider needs to impartial, and fair out-of-court ADR through employ a lawyer to make the arguments for them one or more financial ombud schemes. It resolves (though they are not prevented from doing so). complaints by consumers (and, in some cases, small businesses) against financial providers. It provides Complaining First to the Financial consumers (including disadvantaged consumers) Provider with a quicker, cheaper, more accessible, and less formal way of resolving financial-services disputes Financial ombud schemes expect consumers than the courts. to take their complaint first to the financial provider, giving it an opportunity to put things A financial ombud scheme differs from the courts right. Financial ombud schemes also expect in the following ways: financial providers to look into complaints properly 1. ROLE OF A FINANCIAL OMBUD SYSTEM | 3 and to provide a prompt and clear response to the deliver a fair outcome even if the law and financial consumer. If the consumer is dissatisfied with regulations have not kept up with developments in the response from the financial provider, or if the financial services. financial provider fails to respond to the complaint within a reasonable time, then the consumer can Handling Enquiries refer the complaint to the ombud for independent Many of the contacts financial ombud schemes consideration. receive are enquiries from consumers. Some financial providers are not good at explaining Case Handling by the Financial Ombud things to their customers, even when those Scheme customers complain. An independent explanation The financial ombud scheme will look into the from the financial ombud can often sort things out circumstances of the case and see if it is possible straightaway. So, by handling enquiries effectively, to facilitate a fair outcome that both the consumer the ombud can prevent many enquiries from turning and the financial provider accept. Worldwide into complaints while playing a role in consumer experience is that the majority of cases are likely financial education. to be resolved by actively facilitating an agreed fair outcome through the intervention of the impartial Financial ombud schemes receive enquiries from and specialist financial ombud scheme. financial providers as well. A provider may receive a complaint and accept that it has not treated the Where an agreed fair outcome is impossible, customer well but be unsure what redress would be the financial ombud scheme will take account of fair. Advice from the financial ombud scheme can all the evidence and the arguments and issue a often help settle things there and then. decision, giving reasons for the decision. It is usual for the financial ombud scheme to issue a provisional Providing Feedback decision and give the parties a final opportunity to The financial ombud scheme, by reporting regularly comment before the financial ombud53 issues a final on the trends that it sees in its work, can provide decision. If the decision is in favor of the consumer, independent insight, enabling governments and it will go on to say what the financial provider regulators to supervise financial services more should do to put things right. effectively, and enabling financial businesses and consumers to avoid problems. The reports can be The decision will be based on what is fair and used by consumer advisers and the media to help reasonable (equitable) in the circumstances improve the financial capability of the public by of the case. The financial ombud will take into explaining to consumers in plain language what account the law, financial regulations, any industry financial issues to be careful about, what their rights code, and industry good practice but is not bound and liabilities are, and how they can seek redress. by them. This means that the financial ombud can 4 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 2 INTERNATIONAL GOOD PRACTICE FOR FINANCIAL OMBUDS This chapter lists and describes key attributes for an effective financial ombud system, based on international guidance and experience. 2.1 GUIDANCE ON GOOD - Ombud Association65 guide to principles of PRACTICE good governance66 - Ombud Association guide to principles of good The NT’s 2017 consultation policy document complaint handling67 A Known and Trusted Ombud System for All54 identifies the benefits of learning from - Australia and New Zealand benchmarks for international best practice. There is a wide industry-based customer dispute resolution68 range of published international guidance on good practice relevant to a financial ombud system. Such - Australia and New Zealand key practices for guidance includes the following: industry-based customer dispute resolution69 • On the role of a financial ombud system in the 2.2 KEY ATTRIBUTES wider context of financial consumer protection: A number of key common attributes can be - World Bank good practices for financial distilled from this guidance concerning the consumer protection55 overall financial ombud system and individual - OECD high-level principles on financial financial ombud schemes. The different guidance consumer protection56 uses varying terminology, but the key attributes are the following: - OECD effective approaches to implementing those high-level principles57 • Effectiveness Consistent redress in all appropriate sectors of • On the principles and practices relating to a financial services financial ombud system specifically: • Independence - World Bank report on fundamental principles Visibly objective, impartial, and unbiased for financial ombudsmen58 • Accessibility - INFO Network59 guide on effective approaches Well known, easy to use, and free for consumers to fundamental principles60 • Fairness - INFO Network guide on setting up a financial Processes and decisions visibly fair and equitable ombudsman61 • Efficiency • On the principles and practices relating to ombud Good quality of service and value for money systems in general: • Openness - EU62 recommendation 1998/257/EC on out-of- Clear and open to scrutiny about its work and the court settlement of consumer disputes63 lessons that can be drawn from it - EU directive 2013/11/EU on ADR for consumer disputes64 2. INTERNATIONAL GOOD PRACTICE FOR FINANCIAL OMBUDS | 5 In considering these, it is necessary to take • Which complainants are covered?70 account of differing national circumstances while remaining true to the key attributes. For example: • Does that include non-customers who have been affected by a financial provider? • The appropriate arrangements need to take into account the constitutional, legal, cultural, and • Are there time limits for a complaint to be referred economic circumstances in the relevant country. to the relevant financial ombud scheme? • They also need to take into account the nature of Issues to consider on effectiveness of interaction the relevant country’s financial services and the and powers include the following: circumstances of citizens throughout the country. • Is there a clear and sufficient definition of what • Particular difficulties may arise where consumers constitutes a complaint? are disadvantaged because of poor literacy, • Are there clear obligations on financial providers poverty, limited understanding of financial to deal with complaints fairly? services, and/or poor travel/communications infrastructure. • Is there a process for referring cases to the provider if it has not previously seen them? • A financial ombud system will work most effectively where consumers have rights, know • What redress can a financial ombud award if they they have rights, and have the confidence to assert uphold a complaint? their rights. • What is the effect of a financial ombud decision We use these key attributes to identify criteria on the financial provider and the consumer? by which to assess the existing financial ombud system in South Africa, the individual financial • How, and by whom, can a binding decision by a ombud schemes, the statutory Ombud Council, financial ombud be enforced? and alternative structures in seeking to ensure that • In all these, is there consistency across the any potential future scheme architecture efficiently financial ombud system? delivers good quality outcomes for consumers and represents good value for money for the country. We set out below issues to be looked at in that 2.4 INDEPENDENCE assessment. These are reflected in the questionnaire This involves assessing whether there are that we sent to the existing ombud schemes, a copy independent structures to ensure redress that of which is in appendix B. is visibly objective, impartial, unbiased, and consistent. Issues to consider include the following: 2.3 EFFECTIVENESS • Is the independence of any financial ombud This involves assessing whether there is consistent scheme established by its constitutional rules, to redress in all appropriate sectors of financial ensure its impartiality? services. Issues to consider on effectiveness of scope include the following: • Does any financial ombud scheme have an independent board, to provide the financial ombud • Which financial providers are covered by the with essential support and accountability? financial ombud system? • Are the members of the independent board chosen • Which activities are covered by the financial in a way that instills public confidence? ombud system? 6 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Are the members of the independent board • Does the financial ombud scheme take active appointed on terms that secure their independence steps to make its services visible and accessible from those who appointed them, the financial to consumers (especially vulnerable and industry, consumer bodies, financial regulators, disadvantaged consumers)? and politicians? • Can consumers refer a case to the financial ombud • Does the independent board have the power to free of charge, so that cost does not form a barrier make changes to the scope and powers of the to access? financial ombud scheme without the financial industry or consumer bodies having a veto? • Is any financial ombud scheme easily available and accessible to complainants for submission of • Does any financial ombud scheme have, and disputes and information? control, its own resources and funding? • Does the financial ombud scheme make • Is any financial ombud chosen in a way that instills appropriate provision for consumers who are public confidence? more vulnerable or disadvantaged? • Is any financial ombud appointed on terms that • In all these, is there consistency across the secure its independence from those who appointed financial ombud system? it, the financial industry, consumer bodies, financial regulators, and politicians? 2.6 FAIRNESS • In all these, is there consistency across the This involves assessing whether the financial financial ombud system? ombud system has processes and decisions that are visibly fair, equitable, and consistent. Issues 2.5 ACCESSIBILITY to consider include the following: This involves assessing whether the financial • Does the financial ombud scheme have rules and ombud system is well known, easy to use, and processes that apply the principles of procedural free for all types of consumers. Issues to consider fairness (otherwise known as “due process” or include the following: “natural justice”) in handling complaints. • Are financial providers required to tell customers • Does the financial ombud scheme have rules in writing about the relevant financial ombud and processes that apply fairness and equitable scheme? principles in achieving their complaint-resolution outcomes? • Does any financial ombud scheme provide comprehensive information on its own website? • Is a decision by a finance ombud protected from being overturned except by the courts (or a tribunal • Does the financial ombud scheme ensure that with equivalent independence and standing)? information is also readily available to potential complainants who do not have access to the • In all these, is there consistency across the internet? financial ombud system? • Does this information enable the parties to understand the financial ombud scheme’s enquiry and case-handling process? 2. INTERNATIONAL GOOD PRACTICE FOR FINANCIAL OMBUDS | 7 2.7 EFFICIENCY 2.8 OPENNESS This involves assessing whether the financial This involves assessing whether the financial ombud system provides a consistently good ombud system is clear and open to scrutiny about quality of service and value for money. Issues to its work and the lessons that can be drawn from consider include the following: it. Issues to consider include the following: • Does any financial ombud scheme have efficient • Does any financial ombud scheme publish a and documented complaint-handling processes? report, at least yearly, providing information about the cases it has handled and the way in which it • Does it have sufficient resources (staffing and has handled them? funding) for the timely resolution of cases? • Does any financial ombud scheme publish other • Does its case-handling staff have the necessary information about its work or plans? skills and expertise? • Does any financial ombud scheme provide • Does it have robust quality assurance of its generic information to assist early resolution of service? complaints? • Does it have clear performance and service • Does any financial ombud scheme’s case-handling standards that are publicly reported? system record all the relevant information about • Are there periodic independent reviews of the each case? ombud scheme? • Is information collected by any financial ombud • In all these, is there consistency across the scheme in dealing with complaints treated as financial ombud system? confidential, subject to specified exceptions? • Does it identify systemic issues, and new/emerging issues, that may require action by regulators? • In all these, is there consistency across the financial ombud system? • Does it provide industry-wide information, to reduce complaints and improve market outcomes for consumers? 8 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 2. INTERNATIONAL GOOD PRACTICE FOR FINANCIAL OMBUDS | 9 DETAILED FINDINGS AND RECOMMENDATIONS Current Position in South Africa 3 FINANCIAL MARKET This chapter briefly reviews the current structure of the South African financial market relevant to the operation of the financial ombud system. 3.1 RELATIONSHIP WITH THE • Friendly societies FINANCIAL OMBUD SYSTEM • Retirement funds and unit trusts • Financial service intermediaries Ombud schemes deal with issues relating to interactions between financial service providers Nevertheless, there are continuing and significant (FSPs) and retail customers (consumers and, challenges for financial inclusion among segments to varying extents, some businesses). The nature of its population. Some of these segments use of financial products and the structure of financial the informal sector alongside, or in preference to, providers influence the use by consumers of the the formal sector. The data in table 3A show that financial ombud system. So the structure of the retail financial inclusion is higher for wealthier, older financial-services sectors is relevant to a review of South Africans. The FinScope SA 2018 Fact Sheet current and future ombud arrangements. Factors showed the following: include the following: • Thirty-six percent of the overall population was • The differing levels of access to the different types formally employed. of financial products and services within different segments of society • Thirty-two percent of the youth population was unemployed. • The types of issues or concerns that might arise for consumers in their dealings with financial • Forty-two percent of the population depended on providers that give rise to a complaint grants and money from others. • The number, types, and patterns of complaints • Twenty-three percent of the population borrowed relating to sectors of the financial market, types of to buy food. financial providers, and individual financial providers 3.3 BANKING AND CREDIT 3.2 FINANCIAL-SECTOR MARKET The banking sector is highly concentrated; the OVERVIEW four largest domestic banks account for some 82 The formal financial sector in South Africa is a percent of total banking assets. well-developed, sophisticated, and liberalized • There are 19 registered banks, three mutual banks, financial sector with high levels of concentration four cooperative banks, 15 local branches of among key institutions. There is also a significant foreign banks, and 30 foreign bank representatives. informal financial sector, which is unregulated and outside the ombud system. The activities of • The largest four banks (measured by assets) the following key sectors of the formal sector are are Standard Bank of South Africa, FirstRand, relevant for this ombud system diagnostic: Absa, and Nedbank. These four banks plus Investec account for the majority of the banking • Banks and non-bank credit providers customer base. • Insurers 3. FINANCIAL MARKET | 11 Table 3A. Financial Inclusion Financial institution account: • All (% age 15+) 67% • Male (% age 15+) 67% • Female (% age 15+) 68% • Young adults (% age 15–24) 61% • Older adults (% age 25+) 70% • Income, poorest 40% (% age 15+) 61% • Income, richest 60% (% age 15+) 72% • Rural (% age 15+) 67% Borrowed from a financial institution: • All (% age 15+) 9% • Male (% age 15+) 11% • In labor force (% age 15+) 11% • Young adults (% age 15–24) 6% • Older adults (% age 25+) 11% • Income, poorest 40% (% age 15+) 7% • Income, richest 60% (% age 15+) 11% • Rural (% age 15+) 9% Source: World Bank Findex Database 2017 • While ranked sixth in terms of assets, Capitec distribution agents, six ADR agents, and 1,495 Bank has grown rapidly and is now the largest debt counsellors were registered. Table 3C shows bank in terms of retail customer base; it had some the distribution of the provision of credit in the 11.6 million customers in early 2019.71 fourth quarter of 2019. New entrants with lower-cost and technology- Other credit providers consist primarily of pension- based solutions are seeking to enter specific backed lenders, developmental lenders, microloan segments of the banking market. These include lenders,75 agricultural lenders, insurers, non-bank entities such as Tyme Bank, which was granted a full mortgage lenders, and securitized debt.76 Consumer banking license in 2017, and potential new entrants, goods retailers also extend credit to their customers such as Discovery Bank and Bank Zero.72 Post for the purchase of goods and services.77 Bank, a state-owned institution, is in the process of seeking a full banking license. Various reports also highlight that many South Africans use formal banking services The NCR’s 2018–19 annual report73 states that, inconsistently, given costs and concerns about as of March 31, 2019, a total of 6,895 credit fraud and security. providers, 33 credit bureaus, four payment 12 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Table 3B. Top 10 Banks in South Africa Total Net Total Total Shareholder’s Name of Institution License consumer interest Assets Loans equity deposits income Standard Bank of SA Locally Controlled 1,317,950 974,935 265,089 876,735 96,999 FirstRand Locally Controlled 1,186,573 859,634 253,667 860,654 90,724 Absa Locally Controlled 1,077,155 819,035 191,51 780,763 81,574 Nedbank Locally Controlled 952,606 719,164 174,092 744,81 73,573 Investec Locally Controlled 450,409 324,782 107,390 324,058 35,309 Capitec Locally Controlled 97,246 75,837 10,953 69,362 20,022 Citibank Foreign 60,362 25,149 25,527 45,597 9,07 HSBC Bank Foreign 59,163 36,508 21,094 49,147 6,10 JPMorgan Chase Foreign 45,031 13,905 29,646 7,90 6,47 Bank of China Foreign 44,494 36,186 7,28 14,450 7,82 National totals 5,290,989 3,885,135 887,458 3,020,766 398,201 Source: Baseline data. Table 3C. Distribution of Credit Provided in Fourth Quarter, 2019 Provided by: Amount in R 1,000 Percentage Banks 115,934,808 79.74% Non-bank vehicle financiers 11,887,962 8.18% Retailers 6,180,329 4.25% Other credit providers 11,379,144 7.83% Source: NCR, Consumer Credit Market Report, Fourth Quarter, December 201974 • According to the WBG Global Findex 2017, 67 percent with other formal accounts), 63 percent percent of adults had access to banking services, was informally served, and 7 percent was but product usage was low among the banked excluded. population: Only 22 percent of adults saved at a financial institution, and 10 percent borrowed - In relation to the actual use of bank accounts, from a financial institution. 7 percent had not been used for a month, and 33 percent were used to receive money that was • The FinScope SA 2018 Fact Sheet showed the withdrawn immediately. following: - Thirty-five percent had some form of savings - Ninety percent of adult population was formally (25 percent in the formal sector and 18 percent served (80 percent with bank accounts and 74 in the informal sector). 3. FINANCIAL MARKET | 13 • There has been limited success in reaching “last- Figures in the 2018–19 report of the FSCA show mile” consumers and grant recipients. The informal that there were 170 registered insurers comprising (unregulated) sector provides an alternative or complement to the formal banking system for those • 74 life insurance companies; in the lower-income segments of the population. • 91 non-life insurance companies; and 3.4 INSURERS • Five composite insurance companies licensed for both life and non-life products. The insurance industry provides long-term insurance, short-term insurance, and reinsurance There were nine reinsurers and 156 section 13B and is dominated by a small number of providers. administrators (which provide administration Long-term insurers deal primarily with life insurance services to retirement funds, administering the for death and disability claims. Short-term insurers benefits owed to members).78 79 provide business general insurance and personal Funeral insurance is by far the most widely held insurance cover for households and motor vehicles. insurance product among consumers in South Such insurance products are used mainly by middle- Africa. and higher-income consumer segments, but funeral insurance is widespread among all consumers. Table 3D. Top 10 Long-Term Insurers in South Africa R 1,000; financial years ending in December 2019 unless otherwise indicated Net Total Net Net Policyholder Net Total Share- Insurer Premium Investment Benefits under Profit Assets holders’ Income Income Insurance Funds Contracts Sanlam Ltd. 72,038,000 76,067,000 45,057,000 8,805,000 900,229,000 79,360,000 Old Mutual Life 53,365,000 59,005,000 67,895,000 367,000 707,603,000 53,988,000 Assurance (South Africa) Liberty Group* 37,223,000 32,717,000 37,153,000 3,348,000 399,016,000 27,614,000 MMI Group* 25,105,000 20,495,000 20,421,000 2,943,000 404,040,000 15,311,000 Hollard Life Assurance* 5,024,891 254,177 3,036,658 569,293 21,729,756 1,244,877 Professional Provident 4,272,893 2,253,456 3,263,219 36,023 35,521,252 470,310 Society Insurance AVBOB Mutual 4,156,125 863,718 1,700,222 2,865 18,476,041 6,185,740 Assurance Society* Absa Life 3,355,482 2,074,590 1,310,705 904,302 31,137,011 1,546,094 Assupol Holdings* 3,356,749 292,830 985,235 907,039 8,669,944 4,267,422 Nedgroup Life 2,068,984 725,483 1,757,931 783,536 12,322,267 1,344,996 Assurance * As of end June 2019 Source: KPMG, Resilience: The South African Insurance Industry Survey 2020 (KPMG, September 2020). 14 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC The FinScope SA 2018 Fact Sheet showed the - The long-term insurance industry is dominated by following: four insurers that account for 65.4 percent of total market assets, and the top 10 insurers account for - Sixty-one percent had some form of insurance. almost 90 percent of total market assets.80 - Fifty-six percent had funeral insurance. - The short-term insurance industry is also - Thirteen percent had life insurance. concentrated; with a large number of providers, - Twelve percent had asset insurance. the top five insurers still account for 43.6 percent - Eight percent had medical insurance. of market share.81 - Eight percent had income insurance. The amendments to the Insurance Act of 2017, effective from July 1, 2018, provide for Both the long-term and short-term insurance microinsurance. Once an entity is licensed by industries are highly concentrated. the PA, the FSCA will supervise it from a market- conduct perspective. Table 3E. Top 10 Short-Term Insurers in South Africa R1,000; financial years ending in December 2019 unless otherwise indicated Net Total Share- Gross Net Net Total Insurer Claims holders’ Premiums Premiums Profit Assets Incurred Funds Sanlam 28,431,000 22,591,000 13,860,000 1,871,000 30,343,000 8,501,000 Hollard Assurance 10,856,041 8,573,189 4,374,371 544,852 10,427,042 2,939,620 Co.* Old Mutual 10,660,000 9,015,000 5,788,000 150,000 10,546,000 4,044,000 Insure Guardrisk 9,983,925 4,126,144 1,119,290 77,256 14,125,478 574,008 Insurance* OUTsurance 8,380,352 8,251,617 4,104,481 1,807,293 6,088,355 3,728,341 Insurance* Bryte 4,528,179 3,692,299 2,375,360 100,020 6,672,312 1,272,259 Insurance Mutual and Federal Risk 3,221,478 46,311 4,566 14,927 2,893,340 206,244 Financing Absa 3,093,306 2,990,721 1,888,445 319,771 2,960,979 1,349,040 Standard 2,758,516 2,640,257 1,306,843 463,744 1,889,792 2,656,429 Insurance Auto and General 2,993,006 613,725 480,041 34,389 1,697,928 597,240 Insurance* *As of end June 2019 Source: KPMG, Resilience: The South African Insurance Industry Survey 2020 (KPMG, September 2020). 3. FINANCIAL MARKET | 15 3.5 FRIENDLY SOCIETIES community for whose benefit such society has been established.83 Friendly societies may be exempt Friendly societies are nonprofit entities from the provisions of the Long-Term Insurance established to provide relief or maintenance Act of 1998, or they may have to provide only for members (or persons related to members) statistical information, if they were established by in childhood, old age, widowhood, or illness, industrial agreement, have an annual income of less including burial/funeral expenses. There are 196 R 100 000, and are operating exclusively by means registered friendly societies.82 Friendly societies of policies of insurance issued by an insurance are prohibited from advertising for business and company registered under the Friendly Societies may be promoted only by word of mouth within the Act (Act No. 25 of 1956).84 Table 3F. Top 20 Friendly Societies in South Africa Ranked in terms of asset value for the year ending on December 31, 2017 2017 2016 Soc. No. Society Name Assets (R 1,000) 1 2 138747 New Apostolic Church Burial Fund 219,160 2 1 138445 Groep-Begrafnisassosiasie 209,626 3 3 1381109 Printing Industry Employee Benefit Fund for Satu Members 106,860 4 4 138760 Sterftefonds Van Die ATKV 55,669 5 1381253 OAC Burial Society 50,593 6 5 138411 National Mutual Aid Association of Railway, Airways and Harbour 41,981 Servants (SA) 7 6 1381255 OAC Burial Society: District Western Cape 39,125 8 7 138354 Union Corporation Mines Death Benefit Fund 35,155 9 8 1381250 OAC Burial Society: District Gauteng 21,473 10 9 138813 Feltex Sick Pay Fund 18,293 11 138422 Amalgamated Union of Building Trade Workers of SA Benefits Fund 16,904 12 10 1381267 Lebowa Friendly Society 15,887 13 11 1381254 OAC Burial Society: Northern District 15,411 14 12 1381251 OAC Burial Society: District Eastern Cape 12,319 15 13 138942 Leather Workers Death Society 10,406 16 16 138539 Pinetown Textile Mills Medical Benefit Society 7,836 17 15 1381266 Ledwaba Friendly Society 7,631 18 - 1381011 Arme Muslim Burial Society 6,763 19 19 1381096 Philarold Funerals Friendly Society 5,924 20 18 1381256 OAC Burial Society: District Free State 5,901 Source: Registrar of Friendly Society, Annual Report 2017 16 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 3.6 RETIREMENT FUNDS AND UNIT deferred pensioners, dependents, and unclaimed- TRUSTS benefit members.85 Unit trusts also hold sizable amounts of total Retirement funds, with about 16.9 million assets in South Africa. The FSCA registers and members in the public and private sectors, hold supervises unit trust managers. There were 70 around R 2.6 trillion in fund assets. As of June registered domestic collective investment schemes 30, 2019, there were approximately 5,140 registered (52 in securities, one collective investment retirement funds; 1,528 of these were active scheme in property, two collective investment (meaning they had members for whom they receive schemes in participation bonds, and 15 collective contributions and/or pay benefits). investment schemes in hedge funds). There were A number of retirement funds are not subject also 171 registered foreign collective investment to regulation and supervision under the PFA, schemes. Foreign collective investment schemes including the Government Employees Pension in securities are offshore schemes authorized for Fund, established by separate statutes. All promotion in the Republic of South Africa, subject other funds must be registered in terms of the to certain prescribed conditions. Only authorized Pension Funds Act of 1956 (as amended) and are foreign collective investment schemes can be regulated and supervised by the FSCA Retirement marketed to South African investors.86 Details Fund Supervision Division. Total membership of of the top 10 pension funds, retirement fund retirement funds in South Africa on December 31, administrators, and unit trust managers are shown 2018, stood at 17,522,325, of whom 11,447,361 were in tables 3G, 3H, and 3I. active members and 6,074,964 were pensioners, Table 3G. Top 10 Retirement Funds in South Africa Latest fund fiscal year-ends Benefit Fund Assets No. Fund* Fund Class Structure (R 1 million) Members Eskom Pension and Provident Fund Pension fund Benefit 141,206 86,728 South Africa Retirement Annuity Fund Retirement annuity Contribution 112,151 1,407,129 Central Retirement Annuity Fund Retirement Annuity Contribution 104,584 842,166 Sentinel Retirement Fund Pension fund Contribution 85,198 80,281 Lifestyle Retirement Annuity Fund Retirement annuity Contribution 76,208 631,950 Engineering Industries Pension Fund Pension fund Benefit 72,443 1,566,998 Momentum Retirement Annuity Fund Retirement annuity Contribution 57,190 402,468 Old Mutual Superfund Provident Fund Provident fund Contribution 55,962 294,503 Old Mutual Superfund Pension Fund Pension fund Contribution 53,800 146,551 Sasol Pension Fund Pension fund Contribution 50,855 27,459 * Funds’ latest valuation reports to the FSCA as of June 5, 2019 Source: FSCA via Economist Intelligence Unit 3. FINANCIAL MARKET | 17 Table 3H. Retirement Funds: Number of Funds by Administrator on March 31, 2019 Administrator Active Funds* Other Funds Total Funds Liberty Group 114 993 1,107 MMI Group 58 742 800 Alexander Forbes Financial Services 269 477 746 Sanlam Life Insurance 114 222 336 Absa Consultants and Actuaries 122 168 290 Old Mutual Life Assurance Company 23 164 187 (South Africa) NBC Fund Administration Services 79 57 136 NMG Consultants and Actuaries 59 59 118 Administrators Own administrator 37 62 99 All other administrators 653 668 1,321 Total 1,528 3,612 5,140 * Includes funds that have informed the FSCA that they intend to stop conducting business after their liquidations, or transfer their assets and liabilities to other funds or other entities, such as insurers. Source: Economist Intelligence Unit, 2019 Table 3I. Top 10 Unit-Trust Managers in South Africa Manager Total Assets (R 1 million) No. Funds Allan Grat Unit Trust Management 299,328 11 Coronation Management 254,291 28 Nedgroup Collective Investments 173,624 26 Investec Collective Investments 171,175 20 Stanlib Collective Investments 161,485 67 Stanlam Collective Investments 153,671 154 Old Mutual Unit Trust Managers 148,910 60 Absa Fund Managers 142,315 44 PSG Collective Investments 97,886 18 Boutique Collective Investments 96,827 255 Source: Fundsdata.co.za via Economist Intelligence Unit, 2019 18 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 3.7 FINANCIAL SERVICES • Category III FSPs represent investment INTERMEDIARIES administrators specializing mainly in the bulking of collective investments on behalf of clients Just over 12,000 FSPs are licensed under the (linked investment services providers). Financial Advisory and Intermediary Services • Category IV represents assistance business Act 2002 (FAIS Act). The five types of licensed administrators that render intermediary services in categories under the FAIS are as follows relation to the administration of assistance policies • Category I FSPs consist of financial advisers and on behalf of the insurer, to the extent agreed upon those intermediaries who render financial services in terms of a written mandate between the insurer without discretion. and the assistance business FSP. • Category II FSPs (also referred to as discretionary The FSCA 2018–19 annual report provides figures FSPs) render intermediary services of a for the number of licensed entities in each license discretionary nature, as regards the choice category (table 3J). The types of activities that of a particular financial product, but without category 1 licensees are authorized to provide range implementing bulking.87 from advice relating to assistance business (funeral insurance) to collective investment schemes, long- • Category IIA FSPs represent hedge-fund and short-term insurance, health-care benefits, and managers. retail pension-benefit funds. Table 3J. Categories of Financial Service Providers Registered under the FAIS Act Category of FSP No. Registered FSPs (2018–19) Category I (advisory/intermediary services and foreign FSPs) 11,068 Category II (discretionary FSPs) 702 Category IIA (hedge-fund manager FSPs) 126 Category III (administrative FSPs) 28 Category IV (assistance business administration FSPs) 104 Source: FSCA, Annual Report 2018–19, 31 3. FINANCIAL MARKET | 19 4 FINANCIAL REGULATION This chapter provides a brief review of the current structure of the South African financial regulatory framework relevant to the operation of the financial ombud system. 4.1 RELATIONSHIP WITH THE to the Financial Services Board (FSB). The relevant FINANCIAL OMBUD SYSTEM legislation became effective on April 1, 2018. The FSR Act enables the PA and FSCA to enter The regulatory framework influences the into cooperation agreements to ensure consistent development, coverage, and oversight structure of standards and minimize duplication.90 the financial ombud system in the following ways: Under the first phase of the reform program, the PA • The activities of financial regulators influence and FSCA regulate the financial sector under the how financial providers treat their customers and provisions of existing laws and with the overlay of may affect how they handle complaints. the FSR Act.91 The PA and FSCA are responsible for the following current legislation under schedule 3 of • Coverage by an ombud scheme may depend the FSR Act: on statute, a regulatory requirement, or the membership of an industry association. • PA: - Banks Act • The types of complaints that an ombud scheme is able to consider may reflect the scope of regulated - Mutual Banks Act products, services, and activities. - Co-operative Banks Act • Ombud decisions take into account the law, regulatory rules and standards, and relevant - Financial supervision of the Road Accident industry codes. Fund Act • Information about systemic issues in the financial - Long-Term Insurance Act and Short-Term market, identified through complaints handled by Insurance Act, as they relate to matters within financial ombuds, may help financial regulators to the specific objectives of the PA identify issues requiring their attention. - Regulations issued in terms of any of the above • The structure and performance of ombud schemes • FSCA: may be overseen by government agencies. - ­Pension Funds Act 4.2 FINANCIAL SECTOR - Friendly Societies Act REGULATION ACT - Financial Advisory and Intermediary Services South Africa is undertaking wide-ranging (FAIS) Act reforms of its financial services regulation and has recently implemented a twin-peaks - Collective Investment Schemes (CIS) Control regulatory structure. The FSR Act established Act two new authorities: the PA88 as a juristic person - Financial Markets Act operating within the administration of the South African Reserve Bank, and the FSCA89 as successor - Credit Rating Services Act 4. FINANCIAL REGULATION | 21 - Long-Term Insurance Act and Short-Term • Establishment of national standards Insurance Act, as they relate to matters within the specific objectives of the FSCA • Promotion of a consistent enforcement framework - Regulations issued in terms of any of the above • Registration of The FSR Act also enables the PA and FSCA to - Credit bureaus and credit bureau resellers; issue standards in their area of responsibility - Credit providers; as well as joint standards when required. The FSCA is able to set standards relating to the conduct - Debt-counselling services; of institutions relating to its responsibilities and goals of implementing initiatives aimed at treating - payment distribution agents; and customers fairly. The FSCA will be able to do so for - ADR agents92 the relevant conduct activities for entities authorized and supervised by the PA, such as banks and insurers. Credit providers must be registered with the The FSCA is solely responsible for setting standards NCR.93 This applies to all businesses and individuals relating to the following: who do business on credit, provide loans, or charge interest on overdue accounts (within the threshold • Fair treatment of customers limits set under the NC Act), including • Design and suitability of financial products and • Banks; financial services • Microlenders; and • Promotion, marketing, and distribution of, and advice in relation to, those products and services • Retailers, such as furniture and clothing stores. • Resolution of complaints and disputes concerning The NCR was established under the NC Act as part those products and services, including redress of the major reforms to the regulation of consumer credit in South Africa.94 The NCR regulates the credit • Information disclosure industry in South Africa. Its role includes consumer • Refusal, withdrawal, or closure of a product or education, research, policy development, registration service of industry participants, investigation of complaints, and ensuring the enforcement of the NC Act. • Financial-education programs As consumer protection is a concurrent responsibility • Design, suitability, and implementation between the national and provincial governments under the constitution of South Africa, regulation • Monitoring and evaluation of financial-education of credit by the NCR involves coordination and programs or other initiatives promoting financial harmonization with the provincial consumer literacy protection offices.95 • Prevention of financial crime The NCR’s functions include investigation of complaints. A consumer may lodge a complaint 4.3 NATIONAL CREDIT ACT with the NCR against any institution offering credit, against a debt counsellor and a credit bureau, The NC Act (as amended by the National Credit provided the NCR has jurisdiction. Juristic persons Amendment Act of 2014) has a number of (trust companies and so forth) may lodge a complaint purposes. These include the following: if the person making the complaint is authorized to • General regulation of consumer credit to promote do so and the annual turnover of the business or a fair and non-discriminatory market 22 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC group of businesses is less than R 1 million (about must continue to be registered as a credit provider $66,66696) or if the agreement in question is less and subject to oversight by the NCR. than R 250,000 (about $16,666).97 Under the FSR Act, the FSCA is to regulate In 2019, the NCR received 1,874 complaints, most the conduct of credit providers in the same of which related to the removal of debt-review way as it does for other financial products status and end-balance disputes by consumers under and services—for example, on matters such as debt review. The NRC also provided training to the marketing and promotion, the provision of advice, provincial consumer protection offices to support and the distribution and disclosure of information the resolution of complaints.98 relating to credit transactions. Any new conduct standards set by the FSCA must take into account The NC Act requires the NCR to promote the requirements in place under the NC Act.103 The development of an accessible credit market to explanatory materials for the draft COFI Bill make address the needs of historically disadvantaged clear that close coordination between the FSCA and persons, low-income persons, and remote, isolated, NCR is contemplated.104 The PA will continue to or low-density communities.99 be responsible for the licensing of banks and their The NC Act also established a National Consumer supervision for purposes of financial safety and Tribunal as an independent adjudicative body to hear soundness objectives. applications under the NC Act. 100 The role of the The COFI Bill, once enacted, will modify and National Consumer Tribunal is to determine when extend the scope of the FSCA’s jurisdiction and conduct prohibited by the NC Act has occurred, amend the FSR Act.105 Schedule 1 of the COFI to help consumers to resolve disputes and obtain Bill sets out the categories and subcategories of redress against credit providers who contravene the activities that will require licensing under the new act, and to enforce the NC Act.101 activity-based licensing regime. These are intended This includes adjudicating on applications made by to cover the full scope of financial services regulated consumers, credit providers, credit bureaus, debt under the FSR Act.106 There is also discretion in the counsellors, and the NCR, reviewing the NCR’s FSR Act for the minister to extend the scope of decisions, and dealing with matters referred to it regulation to other financial products and services. by the NCR or complaints related to allegations In some cases, the activities in Schedule 1 include of prohibited conduct.102 The National Credit classes of businesses authorized by the PA. In Tribunal’s mandate was expanded to enable it to these cases, licensing by the FSCA is intended to deal with prohibited conduct more broadly under happen automatically based on authorization by the the Consumer Protection Act of 2008. PA but with the holder of the license for that activity being required to comply with any relevant FSCA 4.4 PROPOSED CONDUCT OF standards and those under the proposed COFI Bill. FINANCIAL INSTITUTIONS BILL The COFI Bill defines broad activity categories The FSR Act and COFI Bill take into account for licensing purposes consistent with the sector-specific considerations, especially in the objective of the reforms to cover all relevant regulation of provision of credit. Along with the financial-sector activities. The coverage of the Bill newly established PA and FSCA, the existing NCR is wide, including areas such as services relating to will continue to play a role in the regulation of the provision of credit, claims handling by insurers, provision of credit under the existing NC Act. To the and debt-collection activities.107 extent that a bank or other credit provider in South Africa wants to advance credit to natural persons, it 4. FINANCIAL REGULATION | 23 The current list of broad categories and subcategories Under the FSR Act and COFI Bill, an entity in the COFI Bill is as follows: will need to be licensed by the FSCA in order to be able to undertake one or more of the • Providing a financial product: regulated activities.108 This marks a move from - Providing a financial instrument regulating by type of entity to regulating by activity. - Providing a financial product Chapter 12 of the proposed COFI Bill sets out the general requirements for the granting of a license • Distributing financial products: by the FSCA. These include that an applicant for - Sales and execution a license must demonstrate to the authority that it can meet the fit-and-proper requirements (honesty - Product comparison or aggregation services and integrity, good standing, and competence)109 • Financial Advice and that it has a sustainable business model, meets • Managing and administering investments: operational requirements, and is able to comply with the obligations for conducting the relevant type of - Discretionary investment management activity and all legal requirements in the operation - Administering a pooled investment of its business.110 - Operating an investment platform The COFI Bill also sets out requirements relating • Benefit administration: to the governance and culture of a licensed - Pension fund benefit administration entity designed to give effect to the principles of fair dealing.111 It also defines complainant and a - Medical scheme administration complaint for purposes of the proposed bill. Both - Funeral administration are broadly defined. A complaint is defined112 as • Professional fiduciary or custodian service: an expression of dissatisfaction about a financial product or service where the financial provider has - Professional custodian service - Professional nominee service • Not complied with an agreement, a law, a rule, or a code of conduct; - Professional pension fund trustee service - Independent pension fund trustee service • Engaged in maladministration or some willful or negligent action or failure resulting in harm, • Payment service prejudice, distress, or substantial inconvenience; or • Financial markets activities: • Treated the person unfairly. - Undertaking a public offering - Trading The COFI Bill sets out the complaint and claim- handling obligations of licensed entities and - Making a market empowers the FSCA to make standards relating - Clearing services to both complaint and claims handling.113 These obligations include that The details of the COFI Bill are still in consultation. The final scope of what is inside the • The financial institution may not unreasonably broad boundaries and what is outside the regulatory prevent financial customers from submitting a perimeter will depend on the definitions and any claim or making a complaint;114 and exemptions set out in the legislation once enacted. 24 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Licensed financial firms must have an internal • The provision of redress for financial customers complaints system that provides customers with efficient and effective complaints management • The handling and management of claims, that resolves their complaints in a fair and including prohibited claims practices116 expeditious manner.115 Customers must be advised of both internal The FSCA may prescribe conduct standards and external complaints mechanisms. Financial in relation to the handling, management, and providers also need to have systems to monitor reporting of complaints and disputes. This may complaints, so they can take action to prevent them include requirements relating to the following: from occurring in future. The COFI Bill also requires, where relevant, customer claims to be handled in a • Monitoring processes to promote “learning” from “fair, transparent and expeditious manner.”117 complaints • Reporting of complaint information to the authority or public 4. FINANCIAL REGULATION | 25 5 FINANCIAL OMBUD SCHEMES This chapter briefly describes the current financial ombud schemes in South Africa and the NT’s 2017 Consultation Document on reform of the system. 5.1 FINANCIAL OMBUD SCHEMES - The PFA covers complaints relating to fund administrators, insurers, brokers, funds (and Types of Ombud Schemes their boards), and service advisers in relation to pension funds (except for certain public-sector South Africa has seven financial ombud pensions funds).119 schemes—a mixture of compulsory (statutory) and voluntary (industry) schemes. - The Minister of Finance in consultation with the FSCA appoints the PFA and one or more deputy • Statutory ombud schemes are established by law. adjudicators. They have automatic jurisdiction with respect to particular financial services. Their powers over - Under the Financial Services Board Act 97 financial providers are set by law. of 1990 (FSB Act) and the Financial Sector Regulations 2018, the FSCA sets a levy, for • Industry-based ombud schemes are created within funding the PFA, payable in respect of pension a particular industry. Joining may be voluntary funds registered (or provisionally registered) or a condition of being a member of an industry under the Pension Funds Act.120 association. Their powers over financial providers arise from the contract created by the providers’ - The PFA is a schedule 3A entity for purposes of membership of the scheme. the Public Finance Management Act 1 of 1999 (PFM Act). Compared to international practice, South Africa has an unusually large number of financial ombud • Office of the Ombud for Financial Services schemes. The current ombud structure is based Providers121 (FAIS Ombud) mainly around different types of institutions and types of financial products. The FAIS Ombud, - The Office of the FAIS Ombud was established however, covers advice and intermediary services under section 20 of the FAIS Act. by all regulated financial entities (even if they are - Under the FAIS Act, it covers all FSPs (including a member of another ombud scheme) and has a banks and insurers) in relation to advice and backup jurisdiction over the other activities of any intermediary services. regulated financial entities that are not members of any other ombud scheme. - Under the Financial Services Ombud Schemes Act (FSOS Act), it also has a backup jurisdiction Statutory Ombud Schemes covering complaints that the industry-based There are two statutory financial ombud ombud schemes do not cover, or where it is not schemes: clear which scheme has jurisdiction. • Pension Funds Adjudicator118 (PFA) - The FAIS Ombud is appointed by the Minister of Finance in consultation with the FSCA. - The Office of the Pension Funds Adjudicator was established as a statutory body under S30B of the Pension Funds Act of 1956 (PF Act). 5. FINANCIAL OMBUD SCHEMES | 27 - Under the FSB Act and the Financial Sector - The JSE Ombud differs from the other ombud Regulations 2018, the FSCA sets a levy, for schemes because the JSE’s Market Regulation funding the FAIS Ombud, payable by FSPs Division covers much of what the ombud authorized under the FAIS Act.122 schemes do in other sectors. If a complainant is dissatisfied with the response from a JSE - The Office of the FAIS Ombud is a Schedule 3A member, their first recourse is to JSE’s Market entity under the PFM Act. Regulation Division. The Market Regulation Division will investigate, mediate, and/or Industry Ombud Schemes recommend an outcome, and the JSE Ombud There are five industry financial ombud schemes: provides only the final or appeal stage. • Ombudsman for Banking Services123 (Banking The industry ombuds are approved as “recognized Ombud) schemes” under section 11 of the FSOS Act.132 This recognition automatically provides them with - The Banking Ombud covers all the registered recognition in terms of section 134 of the NC Act133 banks, from their membership of the Banking for the resolution of credit disputes that fall within Association South Africa (BASA). their jurisdictions. • Office of the Credit Ombud124 (Credit Ombud) In respect of the Banking, Credit, LTI, and STI Ombud schemes, - The Credit Ombud covers those credit providers, credit bureaus and service providers, and • They operate as voluntary associations or not-for- subscribers to credit bureaus that have chosen profit companies; to join the ombud scheme.125 • The ombuds and deputy ombuds are appointed by • Ombudsman for Long-Term Insurance126 (LTI their governing bodies; Ombud) • The constitutional documents134 set out their - The LTI Ombud covers those long-term insurers jurisdiction and bind providers under contract; that have chosen to join the ombud scheme (as and almost all have done).127 • They are directly funded by their members. • Ombudsman for Short-Term Insurance128 (STI Ombud) In respect of the JSE Ombud scheme, - The STI Ombud covers those short-term insurers • It is not a separate body; that have chosen to join the ombud scheme (as • The ombud is appointed by the JSE; almost all have done) 129 and Lloyd’s.130 • The jurisdiction and powers are set out in JSE • Johannesburg Stock Exchange Ombud131 (JSE rules; and Ombud) • It is funded by the JSE. - The JSE Ombud covers members of the Johannesburg Stock Exchange (JSE) in relation The following major developments occurred in to JSE-listed securities. The JSE is a for-profit 2018–20: entity and a self-regulatory organization, licensed in terms of section 8 of the Financial • Under the FSR Act the commissioner of the Markets Act of 2012 and regulates the financial FSCA took over from the FSB the role of markets it operates. accounting officer for the PFA and FAIS ombud after November 1, 2018. (But this role is due to pass to the adjudicator and ombud themselves from April 2022.) 28 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Section 219 of the FSR Act established an Credit Ombud, significantly reducing the size and independent Financial Services Tribunal, which funding of the Credit Ombud. can reconsider, on application by any aggrieved party, any decisions made by the PFA or FAIS • The LTI Ombud and STI Ombud carried out a Ombud. It can dismiss such an application or “soft merger,” under which they share an ombud set the decision aside and remit the matter for and some systems. Because of the authorization reconsideration by the ombud. system, they needed regulatory approval for a full merger—which they could not obtain because the • Complaints about the credit-information activities FSOS Council had ceased to operate and the new of banks moved to the Banking Ombud from the Ombud Council had not yet been appointed. Table 5A. Key Features of the Financial Ombud Schemes in South Africa FAIS Banking Credit LTI STI JSE PFA Ombud Ombud Ombud Ombud Ombud Ombud Basis of approval PF Act FAIS Act FSOS FSOS Act FSOS Act FSOS Act FSOS Act as ombud Act135 scheme NC Act NC Act136 Source of PFA FAIS Act137 Contract Contract Contract Contract JSE Market complaint- in constit- in constit- in constit- in constit- Rules handling FSOS utional utional utional utional jurisdiction Act138 documents documents documents documents Nature of entity Statutory Statutory Not-for- Voluntary Voluntary Not-for- JSE Ltd. is office, and office, and profit association association profit a for-profit schedule schedule company with without company company.139 3A PFM Act 3A PFM Act industry industry entity entity members members Funding Industry Industry Mix of Levy paid Mix of Case fees No separate levy levy a levy directly by a levy paid directly funding of set and set and and case members and case by members matters collected by collected by fees paid fees paid considered the FSCA the FSCA directly by directly by the JSE members by sub- ombud scribing members Appointment of Minister of Minister of Governing Governing Governing Governing JSE Ltd. ombud Finance Finance body body body body (through company secretary) Coverage Entities Entities All the Some credit Almost all Almost all All regulated authorized registered providers long-term short-term members of under the under the banks and credit insurers insurers the JSE, in PF Act FAIS Act bureaus relation to (excludes and any JSE-listed certain authorized securities public FSP that is pension not covered funds) by another scheme 5. FINANCIAL OMBUD SCHEMES | 29 • In 2020, the Banking, Credit, LTI, and STI • The Banking, Credit, LTI, and STI Ombuds Ombud schemes began to discuss moving toward together cover about 498 FSPs. This includes a potential merger between 2021 and 2024 and all the major banks, most insurance companies, established working groups on a single point of and some non-bank credit providers and credit entry, common branding, shared offices, back- bureaus. The JSE Ombud covers all JSE members. office integration, and harmonization of rules, processes, and case-management systems. • In 2019, the ombud system - Handled 92,273 enquiries; 5.2 SIZE AND SCOPE OF THE FINANCIAL OMBUDS - Received 80,512 complaints; - Opened 42,089 new cases; and Appendix A presents an overview of the ombud system data for 2019, while table 5B gives a - Closed 38,792 cases.140 summary of the activities of the financial ombuds for 2019. • Resolution of these cases by the financial ombuds led to some R 380.78 million (about $25.39 • The FAIS Ombud covers all FSPs, and the PFA million) being paid out to complainants in this handles complaints relating to pension funds period. These amounts do not include the value of that are covered by the PF Act, except for certain other outcomes including the following: public-sector pension funds. Table 5B. Summary of the Activities of the Financial Ombuds for 2019 Banking Credit FAIS LTI STI PFA JSE Totals for Ombud Ombud Ombud Ombud Ombud Ombud System No. providers See PF 34 118 All 53 53 240142 498+ covered Act141 Total R 30.2 R 16.0 R 40.0 R 24.5 R 42.8 R 72.5 0 R 226 expenditure million million million million million million million Total FTE 29 12 49 37 47 60 0 234 staff Total enquiries 30,682 37,269 0 18,337 3,420 2,565 0 92,273 received Total complaints 6,472 29,510 8,835 10,509 13,787 11,399 N/A 80,512 received Total cases 6,472 4,439 5,750 3,574143 10,367 11,399 88 42,089 opened Total cases 6,333 4,937 7 4,507 3,558 9,167 10,289 84 38,875 closed Total ordered R 20.42 R 6.90 R 57.26 R 201.27 R 94.93 R 380.78 to be paid to N/A145 0 million million million million144 million million146 complainants Source: Data provided in response to 2020 WBG diagnostic questionnaire by each ombud scheme 30 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC - Reinstatement of an insurance policy or • Model 2: A centralized model, establishing a recurring payments such as income disability or single statutory ombud scheme annuities A single statutory ombud scheme is established - Benefits paid to pension fund beneficiaries by law, with jurisdiction over all complaints in (as the PFA leaves this to the pension fund the financial sector. As an organization, this office trustees to calculate once the PFA has decided should have different departments with expertise a complaint) to hear complaints on different financial products and services. • The ombud schemes employ in total some 234 full-time-equivalent (FTE) staff; total expenditure It reports to the Minister of Finance with in 2019 across all schemes was about R 226 governance oversight by an independent million (about $15 million). committee or board. The Chief Ombud created under the FSR Act is likely to be best placed to 5.3 NATIONAL TREASURY 2017 take over these functions. CONSULTATION • Model 3: Industry ombuds with strong oversight by the Ombud Council Consultation Under this model, all financial providers in the In September 2017, the NT published a retail market must belong to a financial ombud consultation policy document entitled A Known scheme, either as a direct statutory obligation and Trusted Ombud System for All.147 This reviewed or as a condition of licensing. Such schemes are the historic development of the financial ombud established through industry initiatives. system in South Africa, explained the reforms to the system resulting from the FSR Act, and asked for No ombud schemes are established through comments on further reform of the financial ombud statute. All schemes must be recognized by the system. It canvassed the following three alternative Ombud Council and are subject to oversight by models: the council, including minimum standards for resolving disputes. • Model 1: A hybrid model building on current FSR Act provisions The 2017 Consultation Document also proposed further research into the current operation of the This model makes use of both industry and financial ombud system to inform the work of the statutory ombud schemes but encourages greater new Ombud Council, established by the FSR Act. consolidation among the schemes. The Ombud For this purpose, the NT and FSCA engaged the Council oversees both industry ombuds and the WBG to undertake this diagnostic on South Africa’s statutory ombuds. It establishes a central, single financial-sector ombud system and propose the entry point for customers to enter the ombud optimal approach. system. A consolidated statutory ombud structure Brief Overview of Responses could continue to serve as the “back-stop” The key features of the responses were as follows: ombud, hearing complaints that fall outside the jurisdiction of the industry schemes and newly • Financial ombud schemes designated financial products and services. The The Banking, Credit, LTI, and STI Ombuds, Ombud Council and statutory ombuds report to responding jointly, said the following: the Minister of Finance. - They favored the hybrid model (model 1). 5. FINANCIAL OMBUD SCHEMES | 31 - Change would adversely affect customer - The role of the Chief Ombud must also be service. clearly defined. - They were happy to help with a single point of - The principle of single entry will inevitably lead access. to a bureaucracy and increased costs. - They would cooperate more in the future on - The consultation paper ignored the problems promotion and harmonization. of literacy, financial literacy, and the limits of communication. - They were cheaper and less bureaucratic than a statutory scheme. The FAIS Ombud scheme did not respond to the 2017 Consultation Document. The JSE Ombud said the following: One former industry ombud said the following: - It believed that a centralized model would lack the expertise to handle stock-exchange matters. - The existing system was not fit for purpose and lacked credibility with consumers. - It did not favor models 1 or 2. - There should be a single statutory financial - It favored industry ombuds with strong oversight ombud scheme (model 2). by the Ombud Council (model 3). - There should be direct access to the ombud - It welcomed the prospect of a diagnostic study scheme. of the ombud system. - It should have a local presence through branch The PFA said the following: offices. - Its top complaints arose from failure to comply - It should also have a consumer-education role. with regulation. Another former industry ombud said the following: - Ombud schemes were bearing the burden of regulatory deficiencies. - The existing industry schemes received good cooperation from the industry. - Ninety percent of the out-of-jurisdiction complaints it received were ruled out by the - They appeared to be quicker and cheaper than Prescription Act.148 statutory alternatives. - Ombud schemes could be better known. - Their different processes, timescales, and costs, however, caused concerns. - The FSOS Council did little about promoting coordination and cooperation. - There were fears of politicians influencing a statutory ombud scheme. - There should be more transparency in governance. - A board can make an ombud’s life difficult. There is no logic in just rationalizing the - ­ - He favored a single, private ombud scheme statutory ombud schemes. underpinned by statute (a new model). - The statutory and industry schemes should be • Financial industry rationalized in the same way or left alone. The BASA said the following: - The Ombud Council was a good idea, but its mandate must be properly defined. - The existing system worked well, but they were open-minded about changes. 32 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC - Any new system needed to be cost effective. - Complaints should go to the FSP first. - There was scope for a common point of entry. - There should be no maximum limit on the size of claims the ombud could handle. - Ombud decisions should not become binding precedents. - There should be differential costs based on the stage a case has reached. - Ombuds should not have power to award compensation for distress. - There should be a uniform appeal process for both the insured and the insurer. The Financial Intermediaries Association said the following: - There should an industry forum, for information sharing with the ombud scheme. - The existing system worked well, but they were open-minded about changes. One insurer said the following: - Any new system needed to be efficient and cost - There should be a single statutory financial effective. ombud scheme (model 2). - There should be an appeal system. - Costs should be kept low, especially for low- value claims. The Institute of Retirement Funds said the following: • Others - There should be a single point of access. The Independent Regulatory Board for Auditors said the following: - They preferred to remain with the PFA. - Ombuds should “name and shame” and have - Failing this, they favored a single statutory enforcement powers. ombud (model 2). - Accessibility can be provided by technology. - The funding model would be key to designing any new system. - They favored model 3, subject to resolving the conflict of interest between the NT Director- - They wondered if the FSCA would issue General and the minister. conduct rules clarifying what fairness requires. The Rule of Law Project said the following: - They wondered if PFA appeals would move from the High Court to the Financial Services - The existing system worked well. Tribunal. - Forum shopping was not a problem. The Insurance Association (for short-term insurers) said the following: - Fair and reasonable is not an appropriate basis of decision for an imposed statutory ombud. - Comments were received from only a few members. - Voluntary private schemes were better. - ­ Views were split, but maybe model 1 could be a - Ombud schemes would be less independent if stepping-stone to model 2. politicians were in control. - Consumer affairs offices throughout the country There were no responses from consumer bodies or could assist accessibility. other civil-society bodies. 5. FINANCIAL OMBUD SCHEMES | 33 6 OMBUD OVERSIGHT LEGISLATION This chapter summarizes relevant provisions of the FSOS Act and FSR Act relating to oversight of the ombud system. 6.1 OVERVIEW • The registrar of the FSB, predecessor of the FSCA The registrar of the FSB, however, did not have a South Africa is unusual (compared to vote. international practice) in having a separate oversight framework for the financial ombud The Minister of Finance was to appoint the system. We are at a point of significant change members of the council, after consultation with in the legislative arrangements for this oversight the FSB. In making the appointments, the Minister framework. was required to have regard to the following: • Previously, the ombud system was overseen by the - Relevant, knowledge, experience, and expertise FSOS Council. This was created by the Financial Services Ombud Schemes Act 37 of 2004,149 but the - The demographic and gender profile of the FSOS Council ceased to operate some time ago. South African population • From November 1, 2020, the ombud system is to The Minister could not appoint anyone engaged in be overseen by the new Ombud Council (including the following: a Chief Ombud and other members). This was created by chapter 14 of the FSR Act, but - The business of a financial institution - The recruitment process for the Chief Ombud - Provision to a client of a financial service or a has not been completed yet; and product of a financial institution - Though the other members of the Ombud Council members were to be appointed for Council have been appointed, their names have terms of no more than three years. They could not been announced yet. be reappointed for further terms. A member could be discharged by the minister on the grounds of misconduct or incapacity provided they were given 6.2 FINANCIAL SERVICES OMBUD a reasonable opportunity to be heard. SCHEMES ACT The functions of the FSOS Council were to FSOS Council include the following: The FSOS Act provided for the establishment of • Recognizing non-statutory financial ombud the FSOS Council. The council was to meet at least schemes twice a year and was to comprise the following: • Monitoring compliance with the FSOS Act by • A chairperson recognized ombud schemes • A deputy chairperson • Promoting cooperation and coordination in telling clients about the availability of ombud schemes • Three to five other members 6. OMBUD OVERSIGHT LEGISLATION | 35 • Developing and promoting good practice (in - Follow informal, fair, and cost-effective consultation with recognized ombud schemes) procedures • Ensuring it did not affect the impartiality and - Apply the principles of equity, where independence of any financial ombud appropriate, in resolving complaints • Submitting an annual report to the minister and - Report to the registrar and a body representative FSB of the relevant financial institutions Recognition of Non-Statutory Ombud • Provision for the effective enforcement of ombud Schemes determinations In order to qualify for recognition by the FSOS • Provision to ensure that consumer questions, Council, a financial ombud scheme had to satisfy concerns, and complaints are treated equitably, specified requirements, including the following: consistently, and in a timely, efficient, and courteous manner • Participation by a majority of financial institutions in a particular category • Provision to cooperate with the FSOS Council in promoting the education of clients and • A body that is not controlled by participants and coordination of activities - Appoints the ombud and settles the ombud’s After a financial ombud scheme had been remuneration; recognized by the FSOS Council, the council - Monitors the performance and independence of was to issue a certificate. After this, a recognized the ombud; scheme - Monitors compliance with the constitution and • Could not change its constitution, provisions, or provisions of the scheme; and terms of reference without the FSOS Council’s consent; - Reports any noncompliance to the FSOS Council • Must send the FSOS Council a report on its affairs and functions, in a form specified by the council, • Minimum requirements for the ombud’s within six months of the end of each financial qualifications, competence, knowledge, and year; experience • Must provide the FSOS Council, on request • Sufficient human, financial, and operational and within a reasonable time, information about resources, funded by participants, to enable the the scheme as might be necessary to ensure its ombud to function efficiently and timeously compliance with the FSOS Act; and • Procedures that enable the ombud to do the • Could have its recognition suspended or following: withdrawn by the FSOS Council if the financial ombud scheme had ceased to function or to - Resolve complaints by mediation, conciliation, comply with the FSOS Act. recommendation, or determination - Act independently in resolving complaints or making determinations 36 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Overlaps and Gaps in Jurisdiction - Mediation or resolution of the complaints in terms of the ombud scheme is undertaken by The FSOS Act contained provisions to clarify an ombud appointed in terms of the ombud overlaps in jurisdiction and to fill any gaps. scheme’s governing rules. • Statutory ombud schemes (the PFA and FAIS • Ombud means each of the following: Ombud) had the jurisdiction set out in their enabling acts, and recognized ombud schemes had - The PFA the jurisdiction set out in their terms of reference. - The FAIS Ombud • If there is an overlap between the jurisdiction of a statutory ombud scheme and a recognized ombud - A person declared by a specific financial-sector scheme, the jurisdiction of the statutory scheme law to be a statutory ombud prevails unless it declines to deal with the case. - A person who has the function, in terms of the • If a statutory or recognized ombud scheme receives rules of a recognized industry ombud scheme, a complaint that is outside its jurisdiction, it must of mediating or resolving complaints to which refer it promptly to the statutory or recognized the scheme applies ombud scheme that has jurisdiction. • Financial customer means a person to, or for, • If there is uncertainty about which financial whom a financial product, a financial instrument, ombud scheme has jurisdiction, the relevant a financial service, or a service provided by a schemes should consult to resolve this. market infrastructure is offered or provided, in whatever capacity, and includes • If a complaint falls outside the jurisdiction of all the other financial ombud schemes, the FAIS - A successor in title of the person; and Ombud has jurisdiction over it. - The beneficiary of the product, instrument, or service. 6.3 FINANCIAL SECTOR REGULATION ACT • Financial institution means any of the following, other than a representative: Definitions - A financial product provider The act includes a number of relevant definitions. - An FSP • Ombud scheme means - A market infrastructure - An industry ombud scheme; or - A holding company of a financial conglomerate - A statutory ombud scheme. - A person licensed or required to be licensed in • Industry ombud scheme means an arrangement terms of a financial-sector law with the following characteristics: - The arrangement is established by one or more financial institutions. - The purpose of the arrangement is to facilitate mediation and resolution of complaints from financial customers about financial institutions that are members of the ombud scheme. 6. OMBUD OVERSIGHT LEGISLATION | 37 Establishment of Ombud Council • An ombud Chapter 14 establishes an Ombud Council to • A member of the governing body or staff of an assist in ensuring that financial customers with ombud scheme complaints against financial institutions have access to affordable, effective, independent, and • A member of the staff of the Ombud Council fair ADR processes by means of the following activities: • A disqualified person151 • Recognizing industry ombud schemes • Anyone not ordinarily resident in South Africa • Promoting cooperation and coordination among • Anyone engaged in providing financial services ombuds Board members must be appointed for terms of • Striving to protect the independence and no more than five years. They can be reappointed impartiality of ombuds for one further term, and the minister must tell them, at least three months before the end of their first • Promoting public awareness of ombuds and term of office, whether they are to be reappointed. ombud schemes and their services Board members hold office on terms and • Taking steps to facilitate access by financial conditions (including relating to remuneration) customers to appropriate ombuds that are determined by the minister. The minister may remove a board member if • Publicizing ombud schemes, including the kinds of complaints each deal with • The member becomes a disqualified person; or • Resolving jurisdictional overlaps among different • An independent inquiry, established by the ombud schemes minister and whose findings are reported to the National Assembly, finds that the member • Monitoring the performance of ombud schemes - Is unable to perform their duties for health or • Supporting financial inclusion other reasons; The board comprises the following: - Has failed materially to discharge any of their responsibilities of office; or • The Chief Ombud - Has acted in a way that is inconsistent with • The commissioner of the FSCA continuing to hold office. • At least four but not more than six other members The Chief Ombud is appointed by the minister. The commissioner of the FSCA, however, does not The Chief Ombud have a vote. • Must agree performance measures in writing with The Minister of Finance appoints the members of the minister; and the board and appoints a chairperson and a deputy • Holds office on the terms and conditions chairperson (who may be neither the nommissioner determined by the board. nor the Chief Ombud).150 The minister may not appoint as a member of the board the following figures: 38 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Operation of Ombud Council • The ombud scheme has (or will have) a significant number of members. The Ombud Council must perform its functions without fear, favor, or prejudice. Board members • Its rules specify its scope. must act honestly, declare any conflict of interest, and perform their functions • Its rules require members to tell customers about the scheme and how to contact it. • In good faith; • Its rules make adequate and appropriate provision • For a proper purpose; and for making complaints. • With care and diligence. • Its rules are legally binding on members and enforceable by the industry ombud scheme. Anyone who is (or was) a board member or a member of staff must not misuse their position • Its rules require members to comply with its or information obtained to determinations. • Improperly benefit themselves or anyone else; • Its rules make adequate provision for monitoring and oversight of its operations. • Impede the Ombud Council’s ability to perform its functions; or • Its rules make adequate provision about the employment terms and conditions of the ombud. • Cause improper detriment to anyone. • Its rules require the ombud to apply, where The Chief Ombud is responsible for the day- appropriate, principles of equity. to-day management and administration of the Ombud Council. The Chief Ombud must convene • Its rules comply with applicable Ombud Council regular meetings of the ombuds to discuss the rules. effective operation of the ombud system. Meetings must take place at least four times a year, and also if • It has sufficient resources and capacity. three ombuds request a meeting. • Its recognition will not be contrary to the interests The Ombud Council may engage employees and of financial customers, the financial sector, or the contractors, acquire and dispose of property, and public interest. enter into contracts. It may set levies and fees, but any increase exceeding inflation must be approved Before the Ombud Council can recognize an by the minister. industry ombud scheme, the Ombud Council must publish Recognition of Non-Statutory Ombud • A draft of the scheme rules or amendments to Schemes them; The Ombud Council may recognize an industry ombud scheme that has applied for recognition • An explanation of the need for them and their in a form specified by the Ombud Council and intended operation; includes a copy of the scheme rules and a list • A statement of their expected impact; and of scheme members. The Ombud Council may request additional information and/or verify any • A notice inviting submissions about them. information provided and grant recognition subject to conditions. The Ombud Council must be satisfied The Ombud Council must also submit the draft rules of the following: to the FSCA. 6. OMBUD OVERSIGHT LEGISLATION | 39 The rules of a recognized industry ombud scheme • The scheme is not complying with a requirement must be approved by, and may not be amended of the FSR Act. without the approval of, the Ombud Council. The Ombud Council must not approve rules or an • It is necessary to prevent serious breach of a amendment to them unless it is satisfied that this financial-sector law or material prejudice to assists in achieving the object of the FSR Act— customers. which is to achieve a stable financial system that • A fee, levy, or administrative is unpaid. works in the interests of financial customers and that supports balanced and sustainable economic growth Rules and Powers in the republic, by establishing, in conjunction with the specific financial-sector laws, a regulatory and To ensure that financial customers have access supervisory framework that promotes to affordable and effective, independent and fair ADR processes, the Ombud Council may make • Financial stability; rules for ombud schemes on the following: • The safety and soundness of financial institutions; • Their rules • The fair treatment and protection of financial • Their governance, including the composition, customers; membership, operation, roles, and responsibilities of their governing bodies and structures • The efficiency and integrity of the financial system; • The qualifications and experience of ombuds • The prevention of financial crime; • Fit-and-proper person requirements for ombuds and members of governing bodies • Financial inclusion; • The definition and type of complaints to be dealt • Transformation of the financial sector; and with • Confidence in the financial system. • Dispute-resolution processes The Ombud Council may suspend or revoke the • Matters on which the Ombud Council may issue recognition of a scheme if any of the following a regulatory instrument about ombuds or ombud conditions are true: schemes under a specific financial-sector law • The scheme applies for it or has ceased to function. • Matters that may be regulated by Ombud Council rules under any part of the FSR Act • A condition of recognition has been contravened. • Any other matter appropriate and necessary • The scheme, its ombud, or a significant number of for achieving the Ombud Council’s statutory its members have contravened objectives - The rules of the scheme; Different Ombud Council rules may be made - Financial-sector law relating to ombuds; or in respect of different categories of ombuds and ombud schemes and different circumstances. - Ombud Council rules. Ombud Council rules must • Information provided was false or misleading, • Not be inconsistent with relevant financial-sector including by omission. laws; 40 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Not interfere with the independence of an ombud; The Ombud Council may conduct supervisory on-site inspections and investigations for the • Not interfere with the investigation or following purposes: determination of a specific complaint; • To check compliance by an ombud or ombud • Seek to provide for a consistent approach and scheme with a financial-sector law in respect of consistent requirements for all ombud schemes; ombuds, a directive issued by the Ombud Council, • Promote the efficiency and cost effectiveness of or an enforceable undertaking accepted by the ombud schemes; Ombud Council • Promote coordination and cooperation between • Determine the extent of the risk posed by the ombud schemes; and ombud or ombud scheme of contraventions of a financial-sector law in respect of ombuds • Take account of differences in the nature/ complexity of cases handled by different ombud • Assist the Ombud Council in supervising the schemes. ombud or ombud scheme The Ombud Council may issue a written directive Accessibility and Gaps to an ombud or ombud scheme requiring them to The Ombud Council must establish and operate take specified action if they have contravened (or are one or more centers (which may incorporate likely to contravene) a financial-sector law relating a call center) to assist financial customers to to ombud schemes. The Ombud Council may accept formulate complaints and to identify for them the a written undertaking about an ombud scheme’s ombud appropriate to deal with their complaints. future conduct in relation to a financial-sector law relating to ombud schemes. If no recognized industry ombud scheme or statutory ombud scheme152 covers complaints The Ombud Council may make a debarment about a particular financial product/service, the order in respect of an individual (that prohibits Ombud Council may—after consulting relevant them from performing a specified role in relation ombud schemes—designate one or more ombud to an ombud scheme for a specified period) if they schemes to deal with them. If the Ombud Council have designates an ombud scheme, then • Contravened a financial-sector law relating to • Any relevant exclusion in the scheme rules does ombud schemes or an Ombud Council rule; or not apply; • Attempted, or conspired with, aided, abetted, • It must deal with those complaints in the same induced, incited, or procured another person way as it deals with other complaints; and to contravene a financial-sector law relating to ombud schemes. • Any obligation on a financial institution to comply with determinations applies. The Ombud Council may impose an administrative penalty on an ombud scheme, a Requirements for Financial Institutions member of the governing body of an ombud scheme, A financial institution must be a member of any or an ombud who has contravened a financial-sector recognized industry ombud scheme that covers law or an enforceable undertaking accepted by the the financial product/services that it provides. It Ombud Council. must inform its customers about applicable ombud schemes and how to contact them, in accordance with rules issued by the Ombud Council. A financial institution may not 6. OMBUD OVERSIGHT LEGISLATION | 41 • Describe any internal procedure as an ombud Information scheme, or any staff member as an ombud; or An ombud scheme must provide information to • Require or invite a customer to make a complaint the Ombud Council. to an ombud scheme unless it is a recognized • Within six months after the end of each financial industry ombud scheme or a statutory ombud year, an ombud scheme must submit to the Ombud scheme. Council (with the form and content required by A financial institution must comply with the rules the Ombud Council) a report on its operations of a recognized industry ombud scheme of which during the financial year, including in relation to it is a member. A financial customer may enforce the following: those rules as if they were part of their contract. - Compliance with the financial-sector laws Receipt of a complaint by a financial-sector relating to ombud schemes regulator, the Ombud Council, or an ombud - The complaints it is dealing with, and how they suspends any applicable time-barring terms are being dealt with (under any agreement, law, or the running of prescription under the Prescription Act of 1969) - The conduct of financial institutions that is until the complaint has either been withdrawn or giving rise to complaints finally determined. • At any time, an ombud scheme must comply with Requirements for Financial Ombud any information request from the Ombud Council Schemes about the following: An industry ombud scheme may not deal with - The operation of the ombud scheme a complaint that is within the jurisdiction of a statutory ombud scheme. It must refer the - Trends in, and implications of, the conduct of complaint to the appropriate statutory ombud financial institutions scheme unless the statutory ombud scheme has declined to deal with the complaint. - Any other relevant information An ombud scheme may not deal with a complaint The Ombud Council may require an ombud that has been dealt with by another ombud scheme or an ombud to provide specified scheme unless information or a specified document in their possession or under their control if it is relevant to • The complaint is referred to it by the other ombud the Ombud Council’s assessment of compliance scheme; or with the following: • The Ombud Council has designated both schemes • A financial-sector law in so far as it relates to to deal with complaints of the relevant kind, and ombuds each scheme is dealing with the elements of the complaint in accordance with the applicable • An Ombud Council rule determination. • An Ombud Council directive The ombud schemes, and the ombuds, must • An undertaking accepted by the Ombud Council cooperate/collaborate with each other regarding complaints, including by developing processes/ The Ombud Council may also require the information procedures to hear and determine complaints jointly, or document to be verified, including by an auditor on their own initiative, or as may be required by approved by the Ombud Council. Ombud Council rules. 42 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC An ombud must report to the FSCA details, Each of the following must provide the FSCA, including the identity of the financial institution, on request, with information and reports about if (in dealing with a complaint) the ombud becomes the operation of ombud schemes and trends in and aware that there has or may have been implications of the conduct of financial institutions: • Material breach of a financial-sector law by a • The Ombud Council financial institution; or • A statutory ombud scheme • An activity or action by a financial institution that has an effect on other customers. • A recognized industry ombud scheme On request, the Ombud Council must provide the Minister of Finance and NT with information and documents that may be prescribed by regulation but excluding information about persons identifiable from the information. 6. OMBUD OVERSIGHT LEGISLATION | 43 DETAILED FINDINGS AND RECOMMENDATIONS Assessment 7 ASSESSMENT PROCESS This chapter summarizes the fact-finding process used to gather information about the financial ombud system and the views of relevant stakeholders. 7.1 OVERVIEW • Effectiveness Consistent redress in all appropriate sectors of In assessing the financial ombud system in South financial services153 Africa, we took the following into account: • Independence • The responses to the NT’s 2017 Consultation Visibly objective, impartial, and unbiased Document • Accessibility • Desk research into the existing financial ombud Well known, easy to use, and free for consumers system • Fairness • The information set out in chapters 1 to 6 of this Processes and decisions that are visibly fair and report equitable • Fact-finding with the NT and FSCA • Efficiency Good quality of service and value for money • Fact-finding with the existing financial ombud schemes • Openness Clear and open to scrutiny about its work and the • Fact-finding with relevant stakeholders lessons that can be drawn from it Unfortunately, the COVID-19 pandemic prevented the project team from visiting the existing financial 7.2 FACT-FINDING WITH OMBUD ombud schemes and speaking to stakeholders face SCHEMES to face. Despite this challenge, the team was able Process to conduct fact-finding interviews by video, and the level of participation and engagement was high. The WBG team prepared a lengthy questionnaire, a copy of which is set out in appendix B to this We would like to thank the ombud schemes, the NT, report. The questionnaire comprised nine sections the FSCA, industry participants, and all stakeholders of detailed questions, covering the following: for their willingness to share information and views with us during what has been a challenging time. • Basic information Chapters 8 to 16 set out our assessment of • Effectiveness the information we gathered, and chapter 17 • Independence contains our recommendations. Chapters 8 to 14 consider the existing financial ombud system. • Accessibility Chapter 15 considers the new Ombud Council. We have assessed the information and documents • Fairness provided to us against the following key attributes, • Efficiency described in chapter 2: 7. ASSESSMENT PROCESS | 45 • Openness - Both the Banking Ombud and the LTI Ombud said that the new ways of remote working that • Looking ahead they were forced to adopt had shown some • Data significant advantages, and they were likely to retain some aspects of these after the pandemic The NT sent out the questionnaires, but responses was over. were to be sent directly to the WBG in order to encourage frankness. The questionnaire went to all - The FAIS Ombud feared that the pandemic seven of the existing financial ombud schemes: would have an economic effect on providers of financial services, and that this would affect • PFA their capacity to afford the amount of levy that would be required to fund the ombud scheme. • FAIS Ombud • Role of the Ombud Council (views expressed • Banking Ombud before the date of its introduction was announced): • Credit Ombud - The Banking Ombud looked forward to the establishment of the Ombud Council, so that • LTI Ombud it could approve rule changes. It hoped the • STI Ombud Ombud Council would promote awareness of ombud schemes and the services they provide • JSE Ombud and thought that common points of entry could be beneficial. Consumer education was a big Taking into account the information provided in issue, and one where the industry and many response to the questionnaire, we engaged with agencies would need to cooperate. It was the ombud schemes in detail about the existing concerned by the apparent lack of sanctions for system and options for the future. To clarify financial providers that failed to comply with some points, we sent them a series of follow-up the new requirement to belong to an ombud questions, which they kindly answered. We held scheme, though membership was not an issue in video discussions with representatives from all the banking sector. the ombud schemes. As our conclusions began to emerge, we held follow-up video discussions with - The Credit Ombud also looked forward to the all of the ombud schemes. And we subsequently establishment of the Ombud Council, so that it sent them a draft of some sections of this report, for could approve rule changes, and it welcomed fact-checking. the fact that it would become compulsory for all authorized credit providers and other Overview of Feedback financial providers to belong to an ombud The information and data that the ombud scheme. Collective action could improve public schemes provided is summarized in relation awareness of the ombud system. to the various topics in chapters 8 to 14. The ombud schemes offered the following views about - The LTI Ombud said it would end a long period the future: of uncertainty for the ombud system. There should be more standardization and cooperation • Potential longer-term changes as a result of the among the ombud schemes, but it was concerned COVID-19 pandemic: that that there were some sector-specific issues (such as time limits and compensation limits) that should not be standardized. A lot would depend on the quality of the members of the Ombud Council. 46 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC - The STI Ombud also looked forward to the 7.3 FACT-FINDING WITH establishment of the Ombud Council, so that STAKEHOLDERS it could approve rule changes and address systemic issues. Process - The FAIS Ombud thought the Ombud Council To encourage responses from financial regulators, would have a clear mandate and capability to the financial industry, community organizations, harmonize and improve the ombud system, and other stakeholders, we prepared an Issues and that these would improve access to justice Paper. The Issues Paper sought the views of through an affordable, independent, and fair stakeholders on the performance of the current ADR process. ombud system against the key assessment criteria and their suggestions for improvements to the current - The PFA looked forward to monitoring of system. We also asked for views on the advantages standards, equitable distribution of resources, and disadvantages of the three reform models set better-qualified staff, improved access, and out in the NT’s 2017 Consultation Document. The improved coordination of activities. NT sent out the Issues Paper with a request that the • Future shape of the ombud system: responses be sent directly to the WBG. A copy of the Issues Paper is in appendix C of this report. - The general views of the Banking, Credit, LTI, and STI Ombuds on options for reform We received 34 written responses to the Issues were similar to those provided in response Paper, covering 44154 stakeholders, of which 38 to the NT’s 2017 Consultation Document— were from the financial industry. A full list of already summarized in chapter 5, section respondents is provided in appendix D of this report. 5.3(b), of this report—but they had now started We followed up on the responses by holding video discussions about working toward the possible conferences with a selection of stakeholders to obtain amalgamation of their four schemes. additional details and clarifications. To encourage frank feedback, we agreed not to attribute comments - The JSE Ombud favored an entirely industry- to individual stakeholders, so the following section based ombud system with strong oversight by provides only a summary of what we were told. the Ombud Council (model 3). We also reviewed views on complaint handling - The FAIS Ombud favored starting with the hybrid collected from the cooperative bank sector as part model (model 1) with enhanced collaboration of a broader survey being undertaken as a separate among the ombud schemes, with a gradual move project by the WBG. toward a single statutory ombud scheme (model 2) by consolidating the existing statutory and Overview of Feedback industry ombud schemes—to maintain stability, Stakeholders highlighted that the current system promote greater independence, extend coverage, has many strengths. However, most noted that increase cost effectiveness by streamlining the current arrangements of multiple ombuds current processes, and preventing silo working results in a variety of overlaps, gaps in coverage, and forum shopping. inconsistencies, and inefficiencies for both - The general views of the PFA on options providers and consumers. While there was broad for reform were similar to those provided agreement on the need to address these issues, there in response to the NT’s 2017 Consultation was no consensus on the best way to do so. Document—already summarized in chapter 5, section 5.3(b), of this report. 7. ASSESSMENT PROCESS | 47 Key Themes • Respondents who were frequent users of the ombud system felt they could navigate the system All industry respondents from the banking, to direct their complaint to the right ombud. But the insurance, and credit industry were broadly overlaps also created inefficiencies for financial supportive of the performance of the current providers, a duplication of case fees, the potential industry ombuds whom they deal with for inconsistent decision-making approaches regularly. They highlighted the good governance, by the different ombuds to similar matters, and independence, generally efficient complaint- increased forum shopping by consumers. handling process, approach to decision-making, and level of specialist expertise as key positive features • Most respondents agreed that the current system of the current industry ombud schemes. They also is difficult for consumers to navigate. Many commented favorably on the ombuds’ formal and respondents felt the arrangements the ombuds had informal engagement and willingness to share in place to refer complaints to other ombuds, while insights with the industry. These were all features helpful, did not fully address consumer confusion. they felt important to preserve and build on in any They also noted the potential for overlaps between reforms to the current ombud system. the regulatory roles of the FSCA, NCR, and JSE. The intermediary industry respondent supported Many respondents also highlighted the the current distinction between complaints about inconsistency in rules and processes among products and advice. They considered that it was the different ombuds as a key issue, creating important to hold the provision of advice, whether confusion and complexity for consumers and provided independently or as part of a tied offering, firms. These respondents highlighted a lack of to the same standards of professionalism. consistency across many features of the current ombud schemes. These included differences in time Non-bank credit providers highlighted the frames, use of a referral-back process, approaches to importance of understanding the specific features decision-making (including how they apply equity of the business models in this sector. This includes principles), appeal processes, engagement with that the chief competition for microfinance providers stakeholders, and public performance reporting. often comes from the unregulated and informal Some respondents felt the distinct features of the sectors. This means that the costs and impact of financial products and services handled by the credit regulation, and potential for customers to turn ombuds justified some of these differences. to unregulated providers who are not part of any ombud system, are key issues, given the low margins Several comments from smaller-market and cost sensitivity of this consumer segment. participants noted that it was important to take into account the cumulative impact of all the A common theme in many of the comments was regulatory and ombud fees on their business the overlaps in jurisdiction among the different costs. FSPs often have to pay multiple industry ombud schemes. ombud membership fees and the FSCA levies, • The most common overlap referred to was between including covering the costs of the FAIS ombud and the industry ombuds and the FAIS Ombud, PFA. where complaints can involve a mix of product, Several respondents considered that the current service administration, and advice elements—as jurisdictional boundaries did not take into explained more fully in chapter 8 of this report. account financial innovation. They considered that Respondents also referred to a range of overlaps the blurring of traditional institutional and product among the other ombud schemes and regulators lines resulted in packaged financial products and (including the FSCA, NCR, and JSE). services (for example, loan plus credit insurance) 48 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC that cut across the jurisdictions of several of the the ombuds’ use of electronic communications and ombuds. There were also comments that, because that there is not a physical office in each province to the current ombud system is based largely on types cater to walk-in complainants. of institutions and products, it would not align with the activity-based approach to regulation under the Key themes identified in the stakeholder- COFI Bill reforms. consultation process are summarized in table 7A. Views on awareness and accessibility of the Views on Reform Options ombuds differed. Some respondents considered Most stakeholders acknowledge that the current that the ombud schemes were accessible, system is imperfect and needs reform, but there noting their continuing efforts to improve their was no agreement on the best approach to do outreach activities. They also noted that financial so. There were divergent views expressed on the providers informed customers about the ombud advantages and disadvantages of the three options in their policy and other documents. Others felt set out in the NT’s 2017 Consultation Document: the lack of awareness and accessibility was a key weakness of the current ombud system with no • Model 1: A hybrid model building on current FSR single ombud brand. Act provisions A community respondent commented that all • Model 2: A centralized model establishing a single consumers across all socioeconomic groups statutory ombud scheme should be able to access the ombud system from all provinces. They considered this difficult, given • Model 3: Industry ombuds with strong oversight by the Ombud Council Table 7A. Summary of Stakeholder Comments on Key Themes Scope of jurisdiction Differences in quantum of remedies (for example, the FAIS Ombud limit of R 800,000 compared and scheme members to the LTI Ombud’s absence of a limit), coupled with overlaps in jurisdiction, lead to confusion, unfairness, and forum shopping. There are gaps in coverage of some existing products and a lack of flexibility to deal with novel products created by financial innovation. Overlaps in jurisdiction create confusion for consumers, delays, and increases in financial provider costs. Basing jurisdiction on types of institutions and products will not align with the new activity-based approach to regulation under the COFI Bill. The terms of reference of the industry ombud scheme and legislation require them to refer some complaints to the statutory ombuds, even where the initial scheme would otherwise have had jurisdiction. The voluntary membership of the industry ombuds results in incomplete coverage of financial providers and limits the ability of all consumers with complaints to access an ombud scheme. Specialist industry and Some ombuds do not have the specialist product and/or legal expertise for the more complex legal expertise products within their jurisdiction. Given the differences in products and services across the financial system, keeping specialist industry and legal expertise is essential in any reforms. Independence Industry participants felt that current governance and process for appointing ombuds of the industry ombuds ensured that these ombuds were independent. A lack of periodic independent reviews of all schemes with feedback from members was often guarded because of the need to maintain good relationships with the ombuds. 7. ASSESSMENT PROCESS | 49 Funding models Difference in funding models across schemes led to confusion and to some financial providers paying twice. The non-statutory schemes are voluntary, resulting in the cost burden not being fairly shared across industry. Volume-based fees create incentives for financial providers to resolve complaints. The fee structures of the ombuds cause undue costs for smaller firms with fewer disputes. It is important to consider the negative financial impact of all regulatory and ombud fees along with relevant ombud case fees applicable to financial providers. Fairness and appeal How the ombuds apply their equity jurisdiction (fairness) differs. mechanisms Views by some financial providers that the ombuds take the consumer’s side, rather than a balanced and impartial approach, or that the ombud sometimes provides legal advice to a complainant. A view that there is pressure on financial providers to settle complaints, to avoid an adverse ombud decision, even when the financial provider does not consider that the complaint has merit. Different appeal mechanisms across the different schemes lead to inconsistency in decision- making and approach to the equity jurisdiction of the ombuds. A concern about the Financial Services Tribunal (which takes appeals from the FAIS Ombud and PFA) being able to set aside a decision only on appeal, rather than being able to reconsider and decide the matter. Different rules, Key inconsistencies noted included the following: processes, and approach across • Time frames schemes • Levels of specialist industry and legal expertise • Transfer processes to allow the provider to consider a complaint • Use of mediation • Predetermination process • Degree of legalistic approach versus preference for settlement • Application of equity principles • Accessibility of decisions • No central database of all decisions • Different levels of public reporting • Difference in industry engagement models and styles These different approaches lead to confusion for consumers, delays, complexity, and increased costs for industry. The different rules can lead consumers to forum shop where jurisdictions overlap or the boundaries are unclear—or, in relation to credit, where a complaint could go to the Credit Ombud or NCR. The current ombud system is not an integrated and semi-automated complaint system that operates consistently across the entire complaint cycle. Accessibility A lack of a single ombud brand reduces general consumer awareness. Confusion over the jurisdiction of the ombuds by consumers acts as a barrier to access. Reliance by the ombuds on electronic means for dealing with complaints limits access for vulnerable consumers. 50 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Reform issues The ombud system should be independent of both industry and government in any future reformed model. Concerns about disruption, loss of expertise, and reduced capacity in the current ombuds in any transition to a new system. Concerns that costs for smaller and micro financial providers will cause consumers to turn to the unregulated and informal markets. The impact of COVID-19 on the economy needs to be considered in the approach and sequencing of reforms to the ombud system. The complaint-resolution process must take into account and tailor its processes to the profile of consumers. Consumer awareness and education are key improvements that need to be made to the current ombud system. Need to access ombuds in all the national languages. Greater collaboration by ombuds, regulators, and other stakeholders is essential in improving consumer awareness and access. Many of the views on these options in the • An underlying theme of many of these comments responses to the Issues Paper were consistent was a concern that any reforms, however well with the range of views expressed by stakeholders intended, might dilute the attributes they consider on the NT’s 2017 Consultation Document. Key important in the current ombud system or might themes in the comments were on how each of the cause unintended consequences. options addressed the following themes: • These concerns included that any new system • Specialist industry and legal expertise could lead to less independence, more bureaucracy, less professionalism and expertise, and a loss of • Scope of jurisdiction stakeholder support. • The benefits of a single-entry point • Views were also expressed that • Consistency across the different ombuds - Even a well-designed system depends on the • Operational efficiency right people being appointed to the governance bodies and as its leadership; and • The reputation and independence of the ombuds - There is a significant risk of losing current • The costs and potential disruption of change expertise and operating capabilities during the transition to a reformed system. Table 7B summarizes comments on these key themes. • These respondents saw the Ombud Council structure as the way to address these issues, Respondents supportive of Models 1 and 3 including avoiding perceptions of too much considered that the current system is generally government or industry control over the ombuds. operating effectively and has the support of key stakeholders. • They considered that the Ombud Council could address issues around consistency, accessibility, • They consider keeping specialist expertise and and inefficiencies in a multi-ombud system by minimizing disruption to be key risks in any mandating common governance and complaint- reform process. handling standards. 7. ASSESSMENT PROCESS | 51 Table 7B. Summary of Key Themes in Comments on 2017 NT Reform Options Model 2 Model 3 Model 1 Theme Centralized model Industry ombuds with Hybrid model building on establishing a single strong oversight by the current FSR Act provisions statutory ombud scheme Ombud Council Specialist Expertise Advantages Keeps existing knowledge Combined expertise under Will not lose the skill and as seen by stakeholders and cooperative relationships one roof. expertise of the existing staff among ombuds. of the ombuds, so the users will continue to enjoy the Having the ombuds, rather same high level of service. than the Ombud Council, manage the single-entry point would enhance this model. Disadvantages Separate ombud schemes as seen by stakeholders have specialist expertise and are familiar with the industry they serve. This could be lost with a centralized model. Single Entry/Accessibility Advantages A single entry point would Consumers and financial Facilitates a single point of as seen by stakeholders enable quicker resolution, providers would benefit entry for consumers and easier access, and less from a single point of allows the new structure to confusion for customers and reference, it would eliminate draw on the strengths and reduce times when matters confusion about which office mitigate some apparent are passed between offices to approach, and it could criticisms in the existing because of disputes over handle jurisdictional matters ombud structures. jurisdiction. in house. Disadvantages If not well managed, it could Unless it establishes a as seen by stakeholders add inefficiencies to the centralized point of entry, the complaint-resolution process retention of different ombud and act as a bottleneck. schemes would still leave consumers in the same If not staffed with individuals position of having to find with the knowledge and skills, the body to deal with their it could lead to inappropriate complaints. allocation of cases. Jurisdictional Coverage Advantages This model makes use No jurisdictional disputes Compulsory membership will as seen by stakeholders of both industry and leading to faster resolution. ensure equal cost sharing statutory ombud schemes between members and more but encourages greater Covers the full range of accurate reporting. consolidation among the financial services, regardless schemes with oversight by of the quantum. Not constrained by current the Ombud Council. limits of jurisdiction imposed Consistent processes and all by legislation. It addresses the need for data under a single roof allow jurisdiction over all financial the ombud to share concerns products. better, address ongoing issues, and identify trends. 52 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Disadvantages Increase in potential May leave a gap in coverage as seen by stakeholders jurisdictional confusion by an ombud scheme where new products/services enter the market. Operational Efficiency Advantages This model keeps the Enables a centralized view Current structure is in place as seen by stakeholders efficiencies, experience, and that can shorten the time and working efficiently. specialized knowledge of the span of the complaint. various individual industries Draws on the many strengths and statutory schemes. Cost effective in terms of of current ombuds. management structure, consolidated reporting, standard level of complaint- assessment process, quicker resolution, centralized accountability, and knowledge sharing. A central ombud can share resources, expertise, and facilities to create increased efficiencies. Disadvantages Not cost effective because of Benefits are not always Expensive model. as seen by stakeholders duplication of management realizable in practice; for structures of schemes. example, it may not achieve Duplication of cases of an economies of scale and will ombud scheme. For example, Could create process be expensive to establish. if membership is compulsory inefficiencies and delays. for an ombud scheme, Increase in red tape and will each ombud scheme Funding model cumbersome bureaucracy. address both advice-related and not cost effective for complaints and product- or financial providers. Centralized ombud service-type complaints? concentrates governance and Cumbersome governance operational risk in one place. structure, bureaucracy, and red tape. Does not have the same level of flexibility regarding reallocating staff as a centralized model. Can lead to bottlenecks with lack of capacity and specific expertise to deal efficiently with consumers queries. Consistency Advantages Role of Ombud Council will Financial providers deal with Statutory oversight by as seen by stakeholders assist consistency of process one organization with one set Ombud Council would be an and standards across the of rules. advantage, as there would be different ombuds. minimum standards across all the ombud schemes 7. ASSESSMENT PROCESS | 53 Disadvantages Increase in jurisdictional Different industries require A challenge to ensure as seen by stakeholders issues. different rules (for example, high levels of voluntary time frames), given coordination and collaboration Inconsistency in complaint differences in their operations where consumers’ claims are handling and forum shopping. and types of complaints. multifaceted. Difficult (if not impossible) to The standards set by the achieve consistency. Ombud Council should provide guidance and procedures for addressing these types of claims. Independence and Reputation Advantages Ombud Council plays a Avoids perceptions that, Ombud Council structure as seen by stakeholders pivotal role in ensuring as the industry funds the avoids criticisms of too much appropriate governance ombuds, they may not be government control while over the ombuds as an impartial. having common governance independent third-party body. and other standards. A single voice has a greater ability to recommend and The legitimacy of the ombud drive change. depends on the support it receives from its users. It has to earn their respect. This model encourages the scheme to adhere to its stated mission, which impels the appointment of competent adjudicators who underpin the stature and esteem of the ombud. Disadvantages Public perceptions are that In Model 1 and Model 3, the Public perceptions that as seen by stakeholders ombud schemes established Ombud Council plays a pivotal ombud schemes established and funded by the industry role in ensuring appropriate and funded by the industry are not independent. governance over the ombuds are not independent. as an independent third-party body. This is not the case for Model 2. Risks of perception that not independent of government. Disruption/Ease of Transition Advantages Easier to make transition and Least change required to as seen by stakeholders least disruptive. existing landscape and therefore the easiest to The current environment in introduce. the financial-services sector requires as little disruption as possible, so this model can assure that. 54 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Disadvantages This model is what is now in Expensive and disruptive to All the disadvantages of the as seen by stakeholders place, so stakeholders may establish. hybrid model (Model 1) with see it as failing to address few of the benefits. concerns with the current ombud system. The industry ombud schemes would have to replace the existing statutory ombuds (PFA and the FAIS Ombud); doing this would require consultation with, and agreement between, the members of the relevant industries. • The primary concerns expressed about Model 2 • One respondent noted that this model would by these respondents were that it would cause the provide a more effective single voice for the potential loss of current specialist expertise, lead ombud system with a better overview of emerging to greater red tape and government control, and issues and trends. fail to deliver the efficiency benefits claimed for a single centralized ombud. • These respondents also expressed a range of concerns about the limitations of the other two • One respondent also noted that, if the authorities options. These concerns included that these imposed this model without the full support of options would not reduce consumer confusion; stakeholders, it would lack legitimacy and have would result in ongoing jurisdictional overlaps; adverse consequences for the quality of the ombud and would lead to continuing inconsistency in system. standards and processes across the different ombud schemes. Respondents supportive of Model 2 highlighted as key benefits greater accessibility and the • Several respondents also commented that these reduction in confusion for both consumers and options would be less able to cope with current industry. and future financial-sector innovation or align with the activity-based approach under the COFI • They identified as other important benefits reforms. increased efficiency, a broader scope of jurisdiction more able to accommodate current and future innovation, and greater independence from industry. 7. ASSESSMENT PROCESS | 55 8 EFFECTIVENESS OF SCOPE This chapter considers how effectively the current financial ombud system covers complaints about all appropriate sectors of financial services. 8.1 CRITERIA type of financial provider, but also partly by type of activity. The division is summarized in table 8A. To assess how effectively all appropriate sectors Particular issues arise in relation to the crossover of financial services are covered, we consider the between the scope of the voluntary industry overall ombud system, not just the individual ombud schemes and the compulsory statutory ombud schemes. This chapter considers the ombud schemes. The industry schemes are following: prohibited by law from dealing with a complaint • The financial providers and activities that are that falls within the compulsory jurisdiction of the covered statutory ombud schemes (FAIS Ombud and PFA) unless the statutory ombud scheme declines to deal • The complainants who are covered, including with the case. But the boundary is not always clear, relevant non-customers particularly to a consumer. • The time limits for referring complaints to the The first issue arises where a provider advises ombud system155 a customer to take out one of that provider’s products. 8.2 FINANCIAL PROVIDERS AND • Where the provider advises a customer to buy a ACTIVITIES COVERED particular product and the customer later complains, any part of the complaint about the product itself Providers Covered goes to the relevant industry ombud scheme, but Jurisdiction over those providers that are any part of the complaint about the advice to buy covered by the ombud system is divided among it goes to the FAIS Ombud. Many consumers may seven ombud schemes. The division is mainly by find this distinction difficult to grasp. Table 8A. Providers Covered by Existing Ombud System Ombud Scheme Banking Ombud Statutory or voluntary Voluntary: no legal requirement to join Providers covered Bank members of the BASA Providers of that type not covered All retail banks are members of the BASA and so are covered, but cooperative banks are not covered. Who covers those providers FAIS Ombud; statutory compulsory gap-filling jurisdiction Activities covered Financial services (apart from advice and intermediary services) and credit services Activities not covered Financial services advice and intermediary services156 Who covers those activities FAIS Ombud; statutory compulsory jurisdiction 8. EFFECTIVENESS OF SCOPE | 57 Ombud Scheme Credit Ombud Statutory or voluntary Voluntary: no legal requirement to join Providers covered Non-bank credit providers and credit bureaus that choose to join. The scheme says its 113 members include the following: • All the large clothing and furniture retailers • All the members of the Large Non-Bank Lenders Association • A small number of microlenders • A minority of non-bank vehicle and housing finance providers • The eight largest (of 33 registered) credit bureaus • Certain subscribers to credit bureaus • Large mobile-phone operators Providers of that type not covered All other credit providers and credit bureaus (The NCR’s 2018–19 annual report157 said that, as of March 31, 2019, a total of 6,895 credit providers, 33 credit bureaus, four payment distribution agents, six ADR agents, and 1,495 debt counsellors were registered.) Who covers those providers No ombud scheme; complaints go to the regulator (NCR) Activities covered Credit services and credit bureau services Activities not covered Debt collection and debt counselling Who covers those activities NCR Ombud scheme LTI Ombud Statutory or voluntary Voluntary: no legal requirement to join Providers covered Long-term insurers that choose to join Providers of that type not covered The scheme says that the minority of long-term insurers that have not joined cover about 7.5 percent of the market by premium income or about 4.6 percent of the market by asset size. Who covers those providers FAIS Ombud; statutory compulsory gap-filling jurisdiction Activities covered Long-term insurance (apart from pensions funds, advice, and intermediary services) Activities not covered (1) Pension funds (2) Insurance advice and intermediary services158 Who covers those activities (1) PFA; statutory compulsory jurisdiction (2) FAIS Ombud; statutory compulsory jurisdiction Ombud scheme STI Ombud Statutory or voluntary Voluntary: no legal requirement to join Providers covered Short-term insurers that are members of the South African Insurance Association (SAIA) Providers of that type not covered The scheme says that (excluding reinsurers and captive-insurers) about 18 short-term insurers have not joined. Who covers those providers FAIS Ombud; statutory compulsory gap-filling jurisdiction Activities covered Short-term insurance (apart from advice and intermediary services) 58 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Activities not covered Insurance advice and intermediary services159 Who covers those activities FAIS Ombud; statutory compulsory jurisdiction Ombud scheme JSE Ombud Statutory or voluntary Voluntary: no legal requirement to join Providers covered Members of the JSE Providers of that type not covered None; joining is a compulsory part of membership Who covers those providers Not applicable Activities covered JSE-listed securities (apart from advice and intermediary services) Activities not covered (1) Securities advice and intermediary services (2) Non-listed securities (such as contracts for differences) Who covers those activities (1) FAIS Ombud; statutory compulsory jurisdiction (2) FAIS Ombud; statutory compulsory gap-filling jurisdiction Ombud scheme FAIS Ombud Statutory or voluntary Statutory: automatic compulsory jurisdiction Providers covered All FSPs Providers of that type not covered Not applicable Who covers those providers Not applicable Activities covered (1) Financial services advice and intermediary services (2) Other financial services where the provider is not covered by another ombud scheme Activities not covered Activities (apart from financial services advice and intermediary services) that are covered by another ombud scheme in respect of that provider Who covers those activities Banking Ombud, LTI Ombud, STI Ombud, or JSE Ombud Ombud scheme PFA Statutory or voluntary Statutory: automatic compulsory jurisdiction Providers covered Pension funds (and their boards) and administrators, insurers, brokers, and service advisers in respect of pension funds Providers of that type not covered Government pension schemes160 Who covers those providers Not applicable Activities covered Pension fund activities (apart from financial services advice and intermediary services) Activities not covered (1) Advice and intermediary services161 (2) Purchased annuities Who covers those activities (1) FAIS Ombud; statutory compulsory jurisdiction (2) LTI Ombud (if a member) or FAIS Ombud; statutory compulsory gap-filling jurisdiction 8. EFFECTIVENESS OF SCOPE | 59 • The problem can be illustrated by the following by the FAIS Ombud. But if the intermediary is a example: tied agent, the sale (if there is no advice) is not within the definition of intermediary services - A consumer approaches an insurer to insure and is covered by the relevant ombud scheme a house and is advised to take out a particular for the product. Many consumers are unlikely to policy. Later, the consumer makes a claim under recognize the difference. the policy, but the insurer refuses to pay out. • The problem can be illustrated by the following - Is it the case that the consumer was advised example: to take out the wrong type of policy or did not have its terms properly explained? If so, the - A consumer wishes to complain about the complaint is for the FAIS Ombud. service that the consumer received when taking out car insurance through a local agent. - Is it the case that the consumer was advised to take out the right type of policy but does not - Was the local agent an intermediary registered have a valid claim? If so, the complaint is for with the regulator in its own right? If so, the the STI Ombud. complaint is one for the FAIS Ombud. - But the consumer is unlikely to know which - Was the local agent a tied agent of the life of these it is and (at best) has to refer the insurer, operating under the umbrella of the same complaint against a single insurer to two insurer’s regulation? If so, the complaint is for separate ombud schemes. the STI Ombud. • Additionally, based on the fact-finding interviews, - But the consumer is unlikely to know whether the industry schemes appear to approach such the person they dealt with was a registered mixed complaints (about product and advice) in intermediary or a tied agent and which ombud inconsistent ways. Depending on the scheme and to go to—and may even just give up. the nature of the complaint, the industry scheme might act as follows: The third issue arises where there is an administrative problem relating to an existing - It might refer the advice complaint to the FAIS financial product. Ombud if it was apparent at the outset, but deal with the advice aspect itself if it emerged while • The FAIS Act definition of intermediary services investigating the product complaint. (which are covered by the FAIS Ombud) includes some activities relevant to the ongoing - It might investigate the product complaint first, administration of a financial product, so that it is before referring the advice complaint to the difficult to see clearly whether a complaint about FAIS ombud. poor administration of a product should go to the FAIS Ombud or to the ombud scheme that would - Or it might deal with both the advice and product otherwise cover that type of product. complaints itself, if the advice was given by the product provider. • The problem can be illustrated by the following example: The second issue is where a consumer buys a product through a local agent, without taking - A consumer says they have paid the renewal advice. premium on a life policy, but the insurance company says it has not received the premium. • Many products are sold through agents or intermediaries. If they are a registered intermediary, - How is the consumer to know whether they the sale (even if there is no advice) comes within the should be complaining to the LTI Ombud or to definition of intermediary services and is covered the FAIS Ombud? They can only try one or the other and see what happens. 60 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC - Of course, one ombud scheme can refer cases to • Internationally, however, credit is seen as a another, but we were told by a few stakeholders financial service, especially since the 2008 of cases where both ombuds said the case was financial crisis. Most consumers also see it as a one for the other ombud. financial service and expect similar protections. But in South Africa, if a credit complaint is not If the provider is not a member of the relevant covered by an industry scheme, the consumer’s industry ombud scheme, the gap-filling only option is to refer it to the NCR. jurisdiction of the FAIS Ombud applies. Products Covered • This means that the FAIS Ombud can deal with any complaint that falls outside the jurisdiction of From the perspective of an unsophisticated the five industry schemes if it relates to financial consumer, the landscape can be even more services (defined as excluding credit). This is complicated, even where only one financial helpful, as far as it goes. product is involved. Jurisdiction for some typical products is summarized in table 8B. Complaints Table 8B. Products Covered by Existing Ombud System Product If Ombud Scheme Banking Advice/intermediary services FAIS Ombud Other banking services from banks Banking Ombud Other banking services from cooperative banks FAIS Ombud Credit/debit/charge cards From banks Banking Ombud From some non-banks Credit Ombud From other non-banks None (can go to the NCR)162 Other payment services From banks Banking Ombud From non-banks None Lending From banks Banking Ombud From some non-banks Credit Ombud From other non-banks None (can go to the NCR) Credit brokering Secured lending: some brokers Credit Ombud Secured lending: all other brokers None (can go to the NCR) Unsecured lending: some brokers Credit Ombud Unsecured lending: all other brokers None (can go to the NCR) Insurance Advice/intermediary services FAIS Ombud Other issues: banks Banking Ombud Other issues: some credit providers Credit Ombud Other issues: most insurers (if long term) LTI Ombud Other issues: most insurers (if short term) STI Ombud Other issues: if not member of an industry scheme FAIS Ombud Investments/securities Advice/intermediary services FAIS Ombud Other issues: from banks Banking Ombud Other issues: from JSE members, if JSE listed JSE Ombud Pensions Government pension schemes None163 Other pensions/annuities: advice/intermediary services FAIS Ombud Other pensions: apart from advice/intermediary services PFA Purchased annuities LTI Ombud Purchased annuities Advice/intermediary services FAIS Ombud Other issues: most insurers LTI Ombud Other issues: if not member of LTI Ombud FAIS Ombud 8. EFFECTIVENESS OF SCOPE | 61 about particular products may fall within the • To whom can the consumer turn? jurisdiction of one to five ombud schemes or none. Where there is no ombud scheme for credit, the - On whether insurer C should have paid up: the complainant can approach the NCR. STI Ombud or (if the insurer is not a member) the FAIS Ombud A further level of complexity is added by bundled transactions, where a consumer buys two or - On whether lender B gave wrong advice about more products as part of a financial package—as what the insurance covered: the FAIS Ombud illustrated in the following example scenario. - On whether lender B should give the consumer • This can be illustrated by a typical transaction for longer to pay: the Credit Ombud or (if the an unsophisticated consumer: lender is not a member) the consumer can try approaching the NCR - Broker A advised the consumer to take an unsecured loan from non-bank lender B. - On whether broker A misled the consumer about the loan package: not covered by any ombud - Lender B advised the consumer to take a loan scheme, but the consumer can try approaching that included credit insurance. the NCR - The credit insurance was underwritten by • So the unsophisticated consumer may be expected insurer C. to deal, in relation to one problem, with up to three different ombud schemes plus a regulator. • Now, sometime later: Complaints Referred between Ombud - The consumer has lost their job, could not afford Schemes the repayments, and claimed on the insurance. In view of the complexity illustrated above, it is - Insurer C turned down the claim. not surprising that many consumers approach the incorrect ombud scheme and have to be - Lender B said that was not its problem and referred to another scheme. Table 8C summarizes pressed the consumer to pay. what the ombud schemes reported about the - Broker A told the consumer that it was not its number of complaints they had to refer to another problem either. ombud scheme. For 2019, the figures suggest164 the following: Table 8C. Complaints Referred between Ombud Schemes Referred by 2017 2018 2019 Banking Ombud About 800 to 950 About 900 to 1,000 About 900 to 1,000 Credit Ombud Did not refer Did not refer From August 2019: 315 LTI Ombud 2,525 2,900 2,923 STI Ombud No data No data From July 2019: 616 JSE Did not refer Did not refer Did not refer FAIS Ombud 2,687 2,770 2,467 PFA 695 1,075 1,355 62 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • A total of around 9,683 complainants had to be Businesses referred from the ombud scheme they approached There is considerable inconsistency between initially to another ombud scheme. different parts of the ombud system in whether • That is about 12 percent of the 80,512 complaints they take complaints from some businesses or that the ombud schemes reported they had all businesses. The position is summarized in received in total. table 8D. Coverage of businesses is particularly relevant to sole traders and family businesses, where assets and accounts may be shared and the 8.3 COMPLAINANTS COVERED, dividing line between consumer and business may INCLUDING RELEVANT NON- be far from clear. CUSTOMERS For examples of how these inconsistencies work in Consumers practice, consider the position of an incorporated family business. All of the ombud schemes take complaints from consumers. That is so even if the consumer lives • If it has a complaint about credit and its annual outside South Africa, as long as the service was turnover is R 1.1 million: supplied in/from South Africa. - It is covered if the loan is from a bank (by the Banking Ombud). Table 8D. Customers Covered by Existing Ombud System Ombud Scheme Banking Ombud Consumer All Unincorporated business If yearly turnover is less than R 10 million (about $666,666) Incorporated business If yearly turnover is less than R 10 million (about $666,666) Ombud Scheme Credit Ombud Consumer All Unincorporated business All Incorporated business If yearly turnover is less than R 1 million (about $66,666) Ombud Scheme LTI Ombud Consumer All Unincorporated business All Incorporated business All Ombud Scheme STI Ombud Consumer All Unincorporated business All Incorporated business All 8. EFFECTIVENESS OF SCOPE | 63 Ombud Scheme JSE Ombud Consumer All Unincorporated business All Incorporated business All Ombud Scheme FAIS Ombud (compulsory jurisdiction under FAIS Act) Consumer All Unincorporated business All Incorporated business All Ombud Scheme FAIS Ombud (compulsory backup jurisdiction under FSOS Act) Consumer All Unincorporated business If both yearly turnover and net assets are less than R 8 million Incorporated business If both yearly turnover and net assets are less than R 8 million Ombud Scheme PFA Consumer All Unincorporated business All Incorporated business All - But it is not covered if the loan is from a non- Prospective Customers bank lender (even if it is a member of the Credit Subject to the points above, all of the ombud Ombud). schemes take complaints from customers, but they • If it has a complaint about another type of financial are inconsistent in whether they take complaints service and its annual turnover is R 10.1 million: from prospective customers who have been refused a service. This might, for example, arise - It is not covered by the Banking Ombud, Credit from an allegation of discrimination or an allegation Ombud, or FAIS Ombud (under the FSOS Act). that the financial provider has based its decision on inaccurate information. Which ombud schemes take - But it is covered by the LTI Ombud, STI Ombud, complaints from prospective customers, and which JSE Ombud, PFA, and FAIS Ombud (under the do not, is summarized in table 8E. FAIS Act). (The Banking Ombud, Credit Ombud, and the STI Other Non-Customers Ombud do not accept complaints from otherwise Where relevant to the sector that they cover, the eligible businesses that are financial providers. existing ombud schemes do cover other relevant The LTI Ombud, JSE Ombud, FAIS Ombud, and non-customers. The coverage is summarized in PFA do accept such complaints. This is yet another table 8F. inconsistency in the system.) 64 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Table 8E. Whether Prospective Customers Are Covered Ombud Scheme Whether Covered Banking Ombud Covers prospective customers Credit Ombud Does not cover most prospective customers165 LTI Ombud Covers prospective customers STI Ombud Does not cover prospective customers JSE Ombud Does not cover prospective customers FAIS Ombud Does not cover prospective customers PFA Does not cover prospective customers Table 8F. Other Non-Customers Covered Other Non-Customers Ombud Schemes That Cover Them Users of bank payment services and cash machines (ATMs) Banking Ombud Guarantors/sureties for loans or credit Banking Ombud Credit Ombud Someone whose credit history is recorded at a credit bureau Banking Ombud Credit Ombud Someone from whom a debt is incorrectly being claimed Banking Ombud Credit Ombud Beneficiaries of an insurance policy LTI Ombud STI Ombud FAIS Ombud PFA Beneficiaries of a collective investment Banking Ombud FAIS Ombud Beneficiaries of a pension fund FAIS Ombud PFA 8.4 TIME LIMITS failure to refer within the relevant period was not the complainant’s fault. All the ombud schemes have time limits within • All the other six ombud schemes have a general which a complaint must be referred to the ombud time limit of three years but differ in scheme. The position is summarized in table 8G. - The description of when the period starts; • The JSE Ombud requires complaints to be referred to the JSE’s Market Regulation Division within - Whether the ombud has discretion to waive the time limit; and - Six months of the act/omission by the financial provider; and - Whether there is any additional time limit. - Four weeks of the financial provider’s final response to the complaint but extendable if the 8. EFFECTIVENESS OF SCOPE | 65 • Two of these six ombud schemes have additional the policy. In the case of the FAIS Ombud, it is time limits. In the case of the STI Ombud, it six months after receipt of the final response of comprises any enforceable time-bar provision in the financial provider. Table 8G. Time Limits in the Existing Ombud System Ombud Scheme Banking Ombud General time limit Three years When it starts to run The date on which the complainant became aware or ought reasonably to have become aware of the act/omission by the financial provider Discretion for ombud to waive it? No Any other time limit? No Discretion for ombud to waive it? Not applicable Ombud Scheme Credit Ombud General time limit Credit information disputes: None Other disputes: Three years When it starts to run The date of the act/omission by the financial provider Discretion for ombud to waive it? Yes Any other time limit? Credit information disputes: None Other disputes: No Discretion for ombud to waive it? Credit information disputes: Six months from issue of a reference number Other disputes: Not applicable Ombud Scheme LTI Ombud General time limit Three years When it starts to run The date on which the complainant became aware or should reasonably have become aware that he or she had cause to complain to the ombud Discretion for ombud to waive it? Yes, if the failure to complain within that period was due to circumstances for which, in the opinion of the ombud, the complainant could not be blamed Any other time limit? No Discretion for ombud to waive it? Not applicable Ombud Scheme STI Ombud General time limit Three years When it starts to run As per the Prescription Act 1969 (Broadly, when the complainant knew the identity of the financial provider and the facts from which the complaint arises, but the complainant is deemed to have this knowledge if he/she could have acquired it by exercising reasonable care) Discretion for ombud to waive it? No Any other time limit? Any enforceable time-bar provision in the policy, subject to the provisions of any enactment that provides for its extension Discretion for ombud to waive it? Yes, upon good cause shown 66 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Ombud Scheme JSE Ombud General time limit The complaint must have been referred to the JSE’s Market Regulation Division within six months When it starts to run The date of the act/omission by the financial provider Discretion for ombud to waive it? Yes, provided the failure to refer the complaint to JSE’s Market Regulation Division within the relevant period was through no fault of the client Any other time limit? The complaint must have been referred to the JSE’s Market Regulation Division within four weeks of the financial provider’s response to the complaint Discretion for ombud to waive it? Yes, provided the failure to refer the complaint to JSE’s Market Regulation Division within the relevant period was through no fault of the client Ombud Scheme FAIS Ombud General time limit Three years When it starts to run As per section 27(3)(a) of the FAIS Act (Broadly, when the act or omission occurred or [if later] when the complainant became aware, or ought reasonably to have become aware, of the act or omission) Discretion for ombud to waive it? No Any other time limit? Six months after receipt of the final response of the financial provider Discretion for ombud to waive it? No Ombud Scheme PFA General time limit Three years When it starts to run As per the Prescription Act of 1969 (Broadly, when the complainant knew the identity of the financial provider and the facts from which the complaint arises; but the complainant is deemed to have this knowledge if he/she could have acquired it by exercising reasonable care.) Discretion for ombud to waive it? No Any other time limit? No Discretion for ombud to waive it? No A number of significant issues arise from these the relevant act/omission by the FSP, as the assorted time limits: The JSE Ombud’s six-month following examples show: time limit is notably short, and this is especially problematic, as its members are not required to - A problem with a pension might not come to point them out to complainants. The general three- light until someone retires. year time limits of the other ombud schemes are - A problem with a life policy may not come to more generous and, as in many countries, reflect the light until someone dies. time limits that apply in the country’s courts. But there is a significant issue about when the time limit • With complex financial products, there may be starts to run. significant periods of time between the following: • With longer-term financial products, a problem - Between when the financial provider actually might not become apparent for a long time after did (or failed to do) something, and when time 8. EFFECTIVENESS OF SCOPE | 67 starts running with the Credit Ombud and JSE 8.5 STAKEHOLDER VIEWS Ombud, which means that the consumer can run out of time even if they could not have known Stakeholders acknowledge the existence of about what the financial provider did (or failed overlaps and inconsistencies in coverage within to do); and the ombud system. Views differ on how far they - Between when the consumer knew (or ought matter for financial providers and consumers. to have known) about that event, and when • Providers that deal regularly with the ombud time starts running with the Banking Ombud, system say they can navigate it and direct STI Ombud, FAIS Ombud, and PFA, which complaints to the right ombud scheme, and that means that the consumer can run out of time the ombud schemes have processes to redirect even if they could not have known that what the consumers. But other respondents highlighted the financial provider did (or failed to do) caused confusion for consumers and the complexities that a problem that they could complain about; and the current system creates. - Between when the consumer knew (or ought • Some stakeholders in the credit area expressed to have known) this caused a problem that they concern about what they saw as a conflict between could complain about, and when time starts the NCR’s role as a regulator and its role in running with the LTI Ombud,which is more resolving individual complaints. They believed generous and fairer to the consumer. that, when dealing with the NCR, credit providers • By way of international comparison: were reluctant to admit errors to the regulator and reluctant to make concessions in individual cases, - In Australia, the time limit is six years and starts lest it turn into a standard practice. to run from when the complainant first became aware (or should reasonably have become 8.6 CONCLUSIONS aware) that they suffered loss.166 - In the United Kingdom, the time limit is six Financial Providers and Activities years from the event complained of or (if later) Covered three years from when the complainant became The fragmented nature of the ombud system aware (or ought reasonably to have become creates overlaps, gaps, and confusion in the aware) that there was cause for complaint.167 coverage of activities and financial providers. • There is the added risk that, in deciding what • The scope of some ombud schemes depends on the the consumer ought to have known, an objective activity involved, and the scope of other ombud test might be applied, rather than a subjective schemes depends on the type of FSP involved. test based on the particular consumer’s degree of knowledge and sophistication, which would • The current classifications of activities are likely be more relevant to disadvantaged consumers in to change in the future to the new classifications South Africa. in the COFI Bill, which may create additional complications. • In particular, the PFA’s response to the NT’s 2017 Consultation Document commented that, • Most financial providers that are covered by an of the complaints it had to turn away as out- industry ombud scheme are also covered by a of-jurisdiction, about 90 percent were turned statutory ombud scheme for some activities. away because of the legal interpretation of the • Some financial products may be covered by Prescription Act. between one and five different ombud schemes or may not be covered by any ombud scheme. 68 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Credit, which many consumers see as a financial Time Limits service, is outside the gap-filling jurisdiction of There is a patchwork of time limits that apply to the FAIS Ombud (so the only gap filling is the different ombud schemes, and those that have a NCR). general time limit of three years calculate it in • There is potential for inherent tension between the differing ways. NCR’s role as regulator of credit and the impartial • Financial products may be long term, so that years resolution of individual complaints by means of may elapse before an act/omission by a financial ADR.168 provider comes to light. Financial products may • Most mixed complaints (partly about the product be complex, so that significant time may elapse and partly about the advice to buy it) are supposed between when a consumer knows about an act/ to be considered by two ombud schemes. omission and when they realize that it gives grounds for a complaint. • In dealing with mixed complaints, the industry ombud schemes are inconsistent in when and • One of the ombud schemes has very restrictive whether they refer the advice element of the time limits (six months from the FSP’s act/ complaint. omission and four weeks from the FSP’s final response to the complaint). This is coupled with a • Complaints about bundled products may involve discretion to waive the time limit if the delay was two or three ombud schemes, or parts of them through no fault of the complainant. may not be covered by an ombud scheme at all. • The other six ombud schemes have general time Complainants Covered, Including limits of three years, but there are significant Relevant Non-Customers differences in how that time limit applies. There are significant inconsistencies in who - In one ombud scheme, time runs from when is eligible to refer a complaint to the financial the complainant knew (or with reasonable care ombud system in the following cases: should have known) that there were grounds for complaint, but the ombud has discretion to • Businesses: waive the time limit if the complainant could - Four of the ombud schemes take complaints not be blamed for the delay. from businesses of any size. - In four ombud schemes, time runs from when - One ombud scheme takes complaints from the complainant knew (or with reasonable unincorporated businesses of any size but has care should have known) about the financial a R 1 million turnover limit for incorporated provider’s act/omission, and the ombud does businesses. not have any discretion to waive the time limit. - One ombud scheme takes complaints from - In one ombud scheme, time runs from date of businesses of any size in its main jurisdiction the financial provider’s act/omission, but the but has an R 8 million turnover and net assets ombud has discretion to waive the time limit. limit for businesses in its backup jurisdiction. • Two of the six ombud schemes that have a general - One ombud scheme has a R 10 million turnover time limit of three years also have an additional limit for all businesses. time limit. • Prospective customers: Two of the ombud schemes - In one of these ombud schemes, the terms of the will take complaints from prospective customers. product itself may set a time limit. The other five ombud schemes will not. 8. EFFECTIVENESS OF SCOPE | 69 - In the other ombud scheme, the complaint must • Additional work for financial providers—training be referred to the ombud scheme within six staff, understanding the requirements applicable to months of the financial provider’s final response different ombud schemes, and correct signposting to the complaint. • Additional work for the initial stages of ombud Effectiveness of Scope Overall schemes—training staff, understanding eligibility/ limits/gaps/overlaps, and referring complainants We consider that there are material to other schemes inconsistencies in the coverage of financial providers and activities, in the coverage of • Scope for forum shopping by vexatious complaints and in time limits—and that these complainants able to use the complexity in order significantly undermine the effectiveness of the to pursue issues through multiple channels system. In our assessment, all of this complexity must inevitably create the following: Areas for potential improvement include ensuring the following: • Inconsistency in whether otherwise-similar complaints are covered, simply because of the • That the ombud system covers all products identity of the ombud scheme concerned and services that consumers are likely to see as financial (including credit and payment services • Inconsistency in processes, approach, and and also cooperative banks and other cooperative outcomes among otherwise-similar complaints, financial institutions) simply because of the identity of the ombud scheme into whose jurisdiction they fall • That any boundaries between the scope of different ombud schemes are clear and logical, • Confusion for consumers and consumer advisers avoiding overlaps, and can be expressed in terms and delay—with about 12 percent of complaints intelligible to a consumer having to be referred from one ombud scheme to another • Consistency in defining who is able to refer a complaint to a financial ombud (and harmonization • Serious risk that some consumers may be so between this and the “complainant” definition in discouraged by the complexity that they are the COFI Bill) deterred from pursuing their complaint at all or may give up prematurely • Consistent and less inflexible time limits within which a complaint must be referred to a financial ombud 70 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 9 EFFECTIVENESS OF INTERACTION AND POWERS This chapter considers the effectiveness and consistency of the interaction between complaint handling by financial providers and the ombud system, and the powers of the ombud system. 9.1 CRITERIA not have to be in writing—to avoid creating a barrier for disadvantaged complainants. To assess the effectiveness of the interaction We traced varying definitions of what constitutes with financial providers and the consistency of a complaint (and noted that the Banking Ombud powers, we consider the overall ombud system, and Credit Ombud do not have definitions). not just the individual ombud schemes.169 Appendix E quotes nine definitions that we found. • In relation to the effectiveness of the interaction • Statutory definitions: between financial providers and the ombud system, this chapter considers the following: - FAIS Act, used by the FAIS Ombud - Definition of what constitutes a complaint - Pensions Funds Act 1956 as amended (PF Act),170 used by the PFA - Relevant obligations for providers - COFI Bill - Referrals by ombud schemes to providers • Regulatory definitions: • In relation to the effectiveness and consistency of powers, this chapter considers the following: - Conduct Standard 3 of 2020 (Banks)171 under the FSR Act - Redress a financial ombud can award - Policyholder Protection Rules (Long-Term - The effect of a financial ombud decision on the Insurance) financial provider and the consumer - Policyholder Protection Rules (Short-Term - How a binding decision by a financial ombud Insurance) can be enforced • Definitions from ombud scheme rules or terms of 9.2 DEFINITION OF WHAT reference: CONSTITUTES A COMPLAINT - LTI Ombud In order to achieve consistency in a system to - STI Ombud deal with complaints, it is fundamental that there should be a shared understanding of what - JSE Ombud is meant by a “complaint.” Based on international good practice, we would expect there to be a The wording of the definitions varies. consistent definition of a complaint—to be used by • The use of different wording, even where (after ombud schemes, financial providers, and regulators. careful analysis) the effect of the definition is This should make it clear that an oral expression of substantially similar, is likely to lead to confusion dissatisfaction suffices, and that a complaint does and inconsistency of application. On wording: 9. EFFECTIVENESS OF INTERACTION AND POWERS | 71 - All three statutory definitions differ. 9.3 RELEVANT OBLIGATIONS FOR - The three regulatory definitions are consistent PROVIDERS with one another and with the COFI Bill. International Good Practice - The three ombud scheme definitions differ Resolving complaints: The classic role of a from one another, and from the statutory and financial ombud system is to resolve complaints regulatory definitions. from complainants who still remain dissatisfied • Where the effect of the wording is different after their complaint has been considered by (especially where an ombud scheme uses wording the provider. This places the initial obligation that has narrower effect than the regulatory to resolve a complaint where it belongs, with the definition), some complaints are covered by only provider of the product or service—which has the part of the system. On effect: client relationship and access to the relevant records. This should reduce the number of cases that have - All the statutory and regulatory definitions to be resolved by the financial ombud system and appear to have similar effect. minimize its cost. - One of the ombud scheme definitions is not Information about the ombud system: It inconsistent to these in effect. increases confidence if consumers know that, if the provider does not resolve their complaint - But two of the ombud definitions are narrower to their satisfaction, they have access to an in effect (for example, by excluding prospective independent ombud system. Providers should customers). give their customers information about the ombud Requiring a complaint to be made in writing system and the contact details of the relevant ombud limits accessibility (especially for disadvantaged scheme at the point of sale and, particularly, if they consumers), but none of the definitions makes raise a complaint. This can spread the message to all clear whether an oral expression of dissatisfaction of the areas of South Africa in which the provider is enough, or whether it has to be in writing. does business. It is more cost effective than publicity by the ombud system, though it does not replace the - The five industry ombud schemes and the FAIS need for it. Ombud say that they do accept oral complaints. But the PFA says that it cannot accept oral Time limit for final decision: It is important for complaints. providers to be under an obligation to issue a written final decision on any complaint within a - The regulatory General Code of Conduct specified time. The decision should make the issues for Authorized Financial Service Providers and outcome clear. A maximum time limit prevents and Representatives requires them to ask providers from wearing down complainants complainants to lodge their complaints in by making them go through a series of internal writing. escalation stages. And the relevant ombud scheme knows it can take up the complaint once it sees the - The Fit and Proper Requirements and Conditions written decision or if the time limit has expired. for Managers of Collective Investment Schemes (Notice 910 of 2010) requires them to Obligations in South Africa ask complainants to lodge their complaints in Some providers are (or will be) subject to varying writing. complaint-handling obligations as a result of - The PF Act says that a complainant may regulatory requirements. lodge a “written complaint” with a fund for consideration by the board of the fund. 72 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Banks and cooperative banks are subject to at all relevant stages of the relationship, regulatory Conduct Standard 3 of 2020 (Banks). including at point of sale, in relevant periodic The standard’s requirements for complaint communications, and when a complaint or handling, which do not come into force until July claim is rejected. 2021, provide the following: - Insurers must give complainants indicative - Banks must clearly and transparently timelines for addressing the complaint; details communicate the availability and contact details of the internal complaint-escalation and review of the relevant ombud services to customers process if the complainant is not satisfied at all relevant stages of the relationship, with the outcome of a complaint; and details including at point of sale, in relevant periodic of escalation of complaints to the office of a communications, and when a complaint is relevant ombud where applicable. rejected or a claim is repudiated. - Where a complaint is upheld, any commitment - Banks must give complainants indicative by the insurer to make a compensation or timelines for addressing the complaint; details goodwill payment or to take any other action of the internal complaint-escalation and review must be carried out without undue delay and process if the complainant is not satisfied within any agreed time frames. with the outcome of a complaint; and details of escalation of complaints to the office of a - Where a complaint is rejected, the insurer relevant ombud, where applicable. must provide the complainant with clear and adequate reasons for the decision and must - Where a complaint is upheld, any commitment inform them of any applicable escalation or by the bank to make a compensation or goodwill review processes, including how to use them payment or to take any other action must be and any relevant time limits. carried out without undue delay and within any agreed time frames. - Although insurers are required to give complainants indicative timelines for addressing - Where a complaint is rejected, the bank must complaints, there is the possibility of multiple provide the complainant with clear and adequate stages of escalation within the insurer, and reasons for the decision and must inform them no overall time limit is set for issuing a final of any applicable escalation or review processes, decision. including how to use them and any relevant time limits. • Financial services providers and representatives defined in terms of the FAIS Act are subject to the - Although banks are required to give complainants complaint-handling requirements in the General indicative timelines for addressing complaints, Code of Conduct. Under this: there is the possibility of multiple stages of escalation within the bank, and no overall time - Providers must have a written complaint limit is set for issuing a final decision. procedure that includes the name, address, and other contact details of the FAIS Ombud. • Insurers are subject to the complaint-handling requirements in the Policyholder Protection Rules - If the outcome is favorable to the client, the (Long-Term Insurance) and Policyholder Protection provider must ensure that a full and appropriate Rules (Short-Term Insurance). Under these: level of redress is offered without any delay. - Insurers must clearly and transparently - If the outcome is not favorable to the client, communicate the availability and contact details the client must be given full written reasons, of the relevant ombud services to customers notification that they can go to the FAIS Ombud within six months, and the name, address, and other contact details of the FAIS Ombud. 9. EFFECTIVENESS OF INTERACTION AND POWERS | 73 - The outcome of the complaint must be Three of the seven ombud schemes impose communicated within six weeks. relevant obligations on providers under their terms of reference or rules. • Managers of collective investment schemes are subject to the complaint-handling requirements in • Under the terms of reference of the Banking the Fit and Proper Requirements and Conditions Ombud (which incorporates the Code of Banking for Managers of Collective Investment Schemes Practice): (Notice 910 of 2010). Under this, managers must do the following: - Banks must ensure that the contact details of the Banking Ombud are prominently displayed in - Ensure complaint procedures are visible and their branches and supply the ombud’s brochure, accessible to investors address, telephone, and fax numbers on request. - Require complaints to be lodged in writing - Complainants can refer their complaint to the ombud scheme if they have tried the bank’s - Investigate and respond to them promptly, and internal complaints procedure and have not ensure that any resolution is fair received a response within 20 working days. - If the complaint is upheld, offer appropriate - When the bank sends its final response, it must redress tell complainants how to take their complaints - If the investor remains dissatisfied, notify them further (if not satisfied with the outcome) and of any further steps available to them provide information about the relevant ombud scheme. • Under Regulation 30(2)(n) of rules made under the PF Act, the rules of a pension fund must provide • Under the terms of reference of the Credit Ombud: the manner in which any disputes between the - Providers must help customers who wish to pension fund and its members, or between the lodge a complaint and inform them what to do pension fund and any other person whose claim is if they are not satisfied with the outcome. derived from a member, must be settled. - Providers must, within 14 business days, give • Under section 17(2)(u) of the Financial Markets an estimated time limit for the complaint to be Act 19 of 2012, the rules of a securities exchange finalized. must provide for the manner in which complaints against an authorized user, or officer or employee - When sending their final response, providers of an authorized user, must be investigated. must tell complainants how to take their complaint further, if they are not satisfied with • Under chapter 6 of Regulations in Terms of the the outcome. National Credit Act: - Providers must make readily available brochures - If an ADR agent fails to resolve a dispute, it or other materials advising customers of their must complete a certificate in specified form. membership of the Credit Ombud and the - A consumer may lodge a complaint against a required procedures for submitting a complaint. credit provider by submitting a specified form to - Providers must take every reasonable step to the NCR by fax, mail, or e-mail or by contacting notify consumers with a dispute of the existence the NCR by telephone. of the Credit Ombud. - Telephonic and e-mail-originated complaints - There is no explicit obligation to issue a written may be lodged only by the complainant, not by final decision within a specified overall time. another person on behalf of the complainant. 74 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Under the rules of the JSE: and, if not, looks into the complaint itself. This is simpler for the complainant, and it may be that - Within four weeks of receiving a complaint, a some providers take the complaint more seriously JSE-member must respond to the complaint or when they receive it through the ombud scheme. give an appropriate explanation as to why the member is not yet in a position to respond and • Table 9A shows how many premature complaints indicate by when the provider will respond. are referred in this way, apart from by the FAIS Ombud—which does refer but does not record - Where the JSE member decides that the numbers. The STI Ombud has started to compensation or some other form of redress refer only recently. The Credit Ombud says that is appropriate in resolving a complaint, the it has stopped recently, because it now lacks the member must provide the compensation or resources to do so. It tells the complainant that redress as soon as practicable. they must complain to the provider themselves - There is no obligation for the JSE member to and to come back to the Credit Ombud if they are tell complainants that (if they are not satisfied) not satisfied with the outcome. they can refer their complaint to JSE’s Market • The Banking Ombud says that it refers the Regulation Division and on to the JSE Ombud. complaint to the bank if the complainant has not reached the end of the bank’s complaints 9.4 REFERRALS BY OMBUD procedure. The other ombud schemes report that, SCHEMES TO PROVIDERS if the complainant has already raised the complaint with any contact point within the provider, they Some complainants go straight to the ombud will not refer the complaint to the provider but scheme, before raising their complaint with will start dealing with it themselves. the financial provider. In such cases (sometimes referred to as “premature complaints”): • Access to the JSE Ombud is through the JSE’s Market Regulation Division, which is the point • It is helpful if the ombud scheme itself refers of escalation of complaints from JSE-member the premature complaint to the provider; checks financial providers, so premature complaints whether the provider resolves the complaint; cannot arise. Table 9A. Premature Complaints Referred by Ombud Schemes to Financial Providers Referred by 2017 2018 2019 Banking Ombud 7,173 6,309 4,709 Credit Ombud 4,508 5,112 4,439 LTI Ombud 3,436 3,951 4,051 STI Ombud No process No process 294 JSE 0 0 0 FAIS Ombud Not recorded Not recorded Not recorded PFA 5,335 7,523 9,445 9. EFFECTIVENESS OF INTERACTION AND POWERS | 75 9.5 REDRESS A FINANCIAL OMBUD • Directions: Does the financial ombud have power CAN AWARD (instead of, or as well as, awarding compensation) to make a “direction”—which requires the We asked the ombud schemes about the types financial provider to put things right by doing, or of redress that a financial ombud has power to not doing, something (specified by the ombud) in award if they uphold a complaint (in comparison relation to the particular complainant? with international good practice). • Maximum limit: Is there an upper limit on the • Compensation for loss: Can the financial ombud amount of compensation that the financial ombud require the financial provider to pay compensation can award (or the amount of any money payable to the complainant for loss caused directly by the to, or for the benefit of, the complainant as the financial provider’s unfair act/omission? result of a direction)? If there is an upper limit, what was the benchmark for it and when was it • Compensation for consequential loss: Can the last reviewed? financial ombud require the financial provider to pay compensation to the complainant for There are significant inconsistencies among, consequential loss that would not have arisen but and gaps in, the redress powers of the different for the financial provider’s unfair act/omission? ombud schemes, as shown in table 9B. • Compensation for distress/inconvenience: Can the • The JSE Ombud has power to award compensation financial ombud require the financial provider to pay for loss but does not have power to make a compensation to the complainant for any material direction. distress or inconvenience caused to the complainant • The Credit Ombud and the STI Ombud have by the financial provider’s unfair act/omission? power to make a direction but do not have power • Interest on compensation: Can the financial ombud to award compensation for loss. award interest on compensation in appropriate circumstances? Table 9B. Redress Provisions in the Existing Ombud System Banking Credit LTI STI JSE FAIS PFA Ombud Ombud Ombud Ombud Ombud Ombud Compensation for Yes No Yes No Yes Yes Yes loss? Compensation for No No Yes No Yes Yes Yes consequential loss? Compensation Yes No Yes No Yes Yes Yes for distress and inconvenience? Interest on Yes No Yes No Yes Yes Yes compensation? Direction? Yes Yes Yes Yes No Yes Yes Maximum limit for R 2 million No No R 6.5 million No R 800,000 No loss? (buildings) R 3.5 million (other) Lower limit for R 50,000 Not R 50,000 Not No No No distress and awarded awarded inconvenience? 76 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • The Banking Ombud, LTI Ombud, FAIS Ombud, insurance and life insurance. Different parts of and PFA have power to award compensation for the complaint fall within the jurisdiction of different loss and/or to make a direction. ombud schemes, with different powers, as follows: • The LTI Ombud, JSE Ombud, and PFA have • Issues about the loan, if it was from a bank, go to power to award compensation for consequential the Banking Ombud. loss. The Banking Ombud, Credit Ombud, STI Ombud, and FAIS Ombud do not. • Issues about the loan, if it was from a non-bank lender, go to the Credit Ombud. • The Banking Ombud, LTI Ombud, JSE Ombud, and PFA have power to award compensation • Issues about the advice/intermediary services for material distress/inconvenience. The Credit relating to the insurance policies go to the FAIS Ombud, STI Ombud, and FAIS Ombud do not. Ombud. • The Banking Ombud, LTI Ombud, JSE Ombud, • Issues about the credit insurance policy go to the FAIS Ombud, and PFA have power to award STI Ombud. interest on compensation. The Credit Ombud and • Issues about the life insurance policy go to the LTI STI Ombud (which only make directions) do not. Ombud. • The Banking Ombud, STI Ombud, and FAIS Table 9C compares the extent of their differing Ombud have (different) maximum limits on the powers to award redress. loss that can be covered by a compensation award or a direction. The Credit Ombud, LTI Ombud, JSE Ombud, and PFA do not have maximum limits. 9.6 EFFECT AND ENFORCEMENT OF FINANCIAL OMBUD DECISIONS • The Banking Ombud says its maximum limit for loss was last reviewed about seven years ago, We asked the ombud schemes about the effect when it was doubled from the previous R 1 million of a financial ombud’s final decision and to R 2 million. its enforcement. There are some significant differences, summarized in table 9D. • The STI Ombud says its maximum limit for loss was last reviewed in 2017, when it was increased • In the case of the Banking Ombud and the Credit from R 4 million to the current R 6.5 million (for Ombud, the financial provider is bound by the homeowner/building cover) and from R 2 million decision only if the complainant formally accepts to the current R 3.5 million (for other cover). it. The complainant is free to formally accept or reject the decision. If the complainant formally • The FAIS Ombud says that its maximum limit accepts it, they also are bound by it. was first set at R 800,000 by the minister in 2004 and has not been reviewed since. • If the provider does not pay up, the Banking Ombud cannot help the complainant to enforce • Of the four ombud schemes that have power the decision but says that a bank has never refused to award compensation for material distress/ to pay. If the provider does not pay, the Credit inconvenience, the Banking Ombud and LTI Ombud can help the complainant to enforce the Ombud have separate maximum limits for this decision. type of compensation. The JSE Ombud and PFA do not. • In the case of the LTI Ombud and STI Ombud, the provider is automatically bound by the decision, To illustrate the differences and gaps identified, but the complainant is not. If the provider does not consider a complaint relating to a loan where the pay up, the LTI Ombud can help the complainant lender advised the borrower to take out credit to enforce the decision, but the STI Ombud cannot. 9. EFFECTIVENESS OF INTERACTION AND POWERS | 77 Table 9C. Illustration of Differences: Complaint about Loan Plus Advised Sale of Credit Insurance Part of Complaint Bank Non-Bank Advice/ Credit Life Loan Loan Intermediation Insurance Insurance Ombud Scheme Banking Credit FAIS STI LTI Direction? Yes Yes Yes Yes Yes Compensation for loss? Yes No Yes No Yes Maximum limit? R 2 million No limit R 800,000 R 3.5 million No limit Compensation for No No Yes No Yes consequential loss? Compensation for distress/ Yes No Yes No Yes inconvenience? Maximum limit for distress/ R 50,000 0 Not applicable 0 R 50,000 inconvenience? Interest on compensation? Yes No Yes No Yes • In the case of the JSE Ombud, the provider • In the case of the FAIS Ombud and the PFA, both is automatically bound by the decision, but the provider and the complainant are automatically the complainant is not. If the provider does bound by the decision. not pay up, the JSE itself can enforce the decision. If the provider defaults financially, • If the provider does not pay up, neither the FAIS the complainant is likely to have a claim on Ombud nor the PFA can help the complainant to the JSE Guarantee Fund. enforce the decision, but the decisions of both these statutory ombud schemes can be enforced in the same way as a judgment by a civil court. Table 9D. Effect and Enforcement of a Financial Ombud Final Decision— Overview Can Go Straight to Need to Ask a Judge for Can Help Complainant to Ombud scheme Enforcement through an Order to Pay? Enforce? Court Mechanism? Banking Ombud Yes No No Credit Ombud Yes No Yes LTI Ombud Yes No Yes STI Ombud Yes No No JSE Ombud Yes No Yes FAIS Ombud No Yes No PFA No Yes No 78 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Table 9E. Effect and Enforcement of a Financial Ombud Final Decision— by Scheme Ombud Scheme Banking Ombud Does the ombud’s decision bind the financial provider? Yes, if the consumer formally accepts it, whether the provider accepts it or not Does the ombud’s decision bind the complainant? No, if the complainant does not accept it Yes, if the complainant formally accepts it Could the complainant afterward pursue the same claim by Yes, unless the complainant formally accepted the ombud’s litigation in court? decision Can the complainant enforce the ombud’s decision in court? Yes, as a matter of contract Can the scheme help the complainant to enforce the ombud’s No decision? Ombud Scheme Credit Ombud Does the ombud’s decision bind the financial provider? Yes, if the consumer formally accepts it, whether the provider accepts it or not Does the ombud’s decision bind the complainant? No, if the complainant does not accept it Yes, if the complainant formally accepts it Could the complainant afterward pursue the same claim by Yes, even if the complainant formally accepted the ombud’s litigation in court? decision Can the complainant enforce the ombud’s decision in court? Yes, as a matter of contract Can the scheme help the complainant to enforce the ombud’s Yes decision? Ombud Scheme LTI Ombud Does the ombud’s decision bind the financial provider? Yes, automatically, whether the provider accepts it or not Does the ombud’s decision bind the complainant? No Could the complainant afterward pursue the same claim by Yes litigation in court? Can the complainant enforce the ombud’s decision in court? Yes, as a matter of contract Can the scheme help the complainant to enforce the ombud’s Yes decision? Ombud Scheme STI Ombud Does the ombud’s decision bind the financial provider? Yes, automatically, whether the provider accepts it or not Does the ombud’s decision bind the complainant? No Could the complainant afterward pursue the same claim by Yes litigation in court? Can the complainant enforce the ombud’s decision in court? Yes, as a matter of contract Can the scheme help the complainant to enforce the ombud’s No decision? 9. EFFECTIVENESS OF INTERACTION AND POWERS | 79 Ombud Scheme JSE Ombud Does the ombud’s decision bind the financial provider? Yes, automatically, whether the provider accepts it or not Does the ombud’s decision bind the complainant? No Could the complainant afterward pursue the same claim by Yes litigation in court? Can the complainant enforce the ombud’s decision in court? No Can the scheme help the complainant to enforce the ombud’s Yes. As a self-regulatory organization, the JSE can enforce decision? the decision itself. If the provider defaults financially, the complainant is likely to have a claim on the JSE Guarantee Fund. Ombud Scheme FAIS Ombud Does the ombud’s decision bind the financial provider? Yes, automatically, whether the provider accepts it or not Does the ombud’s decision bind the complainant? Yes, automatically, whether the complainant accepts it or not Could the complainant afterward pursue the same claim by No litigation in court? Can the complainant enforce the ombud’s decision in court? Yes, as if it were a civil court judgment Can the scheme help the complainant to enforce the ombud’s No decision? Ombud Scheme PFA Does the ombud’s decision bind the financial provider? Yes, automatically, whether the provider accepts it or not Does the ombud’s decision bind the complainant? Yes, automatically, whether the complainant accepts it or not Could the complainant afterward pursue the same claim by No litigation in court? Can the complainant enforce the ombud’s decision in court? Yes, as if it were a civil court judgment Can the scheme help the complainant to enforce the ombud’s No decision? 9.7 STAKEHOLDER VIEWS 9.8 CONCLUSIONS Stakeholders commented on some of the Definition of What Constitutes a differences highlighted above. Most commonly, Complaint they referred to the maximum award limit of The use of differently worded definitions172 of the FAIS Ombud and the differences in powers what constitutes a complaint creates gaps, could relating to redress. Other stakeholders commented lead to confusion, and makes inconsistency of generically on the range of differences in application more likely. jurisdiction, processes, and approaches across the different ombud schemes. 80 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Though their substance is similar, the wording • The Banking Ombud refers complaints to the of the three statutory definitions differs from one bank if the complainant has not reached the end of another, and the wording of the FSCA definitions the bank’s in-house complaint-handling process. differ from two of the three statutory definitions. • For other ombud schemes, it suffices if the • Among the industry ombud schemes, two do complainant has raised the complaint with any not have definitions, and three have differing part of the financial provider. definitions that also differ from the statutory and FSCA definitions. Redress a Financial Ombud Can Award There are significant differences and gaps in the • Despite the extent of illiteracy and poor literacy redress that the different financial ombuds can in South Africa, none of the definitions provides award, even relating to one product or arising that an oral complaint has the same validity as a out of a single transaction. written complaint. • One of the ombud schemes can award • If the COFI Bill definition were amended to make compensation for loss but cannot make a direction. it clear that a complaint could be oral or written, it Two cannot award compensation for loss but can would suffice for all sectors. make a direction. Four can do both. Relevant Obligations for Providers • Four of the ombud schemes can award The complaint-handling obligations of financial compensation for consequential loss, and three providers lack consistent requirements to resolve cannot. Five can award compensation for material complaints fairly, give information about the distress/inconvenience, and two cannot. ombud system, and give a clear written final decision within a specified time. • Three of the ombud schemes have (differing) maximum limits on what they can award. Four of • The existing regulatory requirements for insurers the ombud schemes do not. and the coming regulatory requirements for banks are consistent with one another. The regulatory Effect and Enforcement of Financial requirements for advisers and intermediaries Ombud Decision differ. Other sectors lack any detailed regulatory The effect of a financial ombud decision, and requirements at all. the means to enforce it, differ among different sectors of the ombud system (and, in some cases, • The terms of reference of the Banking Ombud fall short of international good practice). (incorporating the Banking Code) and the Credit Ombud impose obligations that differ from • In the two statutory schemes: one another and differ in some ways from the regulatory requirements. - Financial providers are automatically bound by the financial ombud’s decision. Referrals by Ombud Schemes to Providers - Complainants are automatically bound by the financial ombud’s decision. Most of the ombud schemes have arrangements to refer to financial providers those complaints - The law provides that their decisions are that have not first been raised with the provider, enforceable in the same way as a civil court but these differ in process and time limits. judgment. • The Credit Ombud used to refer such premature - The ombud schemes cannot assist complainants complaints but says that it has stopped because of in enforcing their decisions. financial constraints since the banks transferred all their work to the Banking Ombud. 9. EFFECTIVENESS OF INTERACTION AND POWERS | 81 • In the Banking and Credit Ombud schemes: can award, and the effect and enforcement of ombud decisions—and that these significantly - Financial providers are bound only if the undermine the effectiveness of the system. In our complainant formally accepts the decision. assessment, all of these issues must inevitably create - Complainants are bound only if they formally the following: accept the decision. • Inconsistency in how financial providers treat - The decisions are enforceable in court under complaints and to what extent financial providers contract law. tell complainants about the ombud system - The Credit Ombud can help the complainant to • Inconsistency (and, in some case, inadequacy) of enforce. outcomes among otherwise-similar complaints, simply because of the identity of the ombud - The Banking Ombud cannot help the complainant scheme into whose jurisdiction they fall to enforce (but says banks always pay). • Encouragement of forum shopping where • In the LTI and STI Ombud schemes: jurisdictional boundaries are unclear, because one ombud scheme may have power to award much - Financial providers are automatically bound by more redress than another ombud scheme the financial ombud’s decision. • Confusion for financial providers about what is - Complainants are not bound. expected of them, and confusion for consumers and consumer advisers about what redress is - The decisions are enforceable in court under available and how it can be enforced contract law. Areas for potential improvement include - The LTI Ombud can help the complainant to ensuring the following: enforce. • A consistent and sufficiently comprehensive - The STI Ombud cannot help the complainant to definition of what constitutes a complaint—to be enforce. used by ombud schemes, financial providers, and • In JSE Ombud scheme: regulators—that confirms that an oral expression of dissatisfaction suffices and that a complaint - Financial providers are automatically bound by does not have to be in writing the financial ombud’s decision. • Consistent requirements for financial providers - Complainants are not bound. (set by the regulator) about how providers should resolve complaints fairly, give information about - The JSE itself can enforce the decision. the ombud system, and give a clear written final - If the provider defaults financially, the decision on complaints within a specified time complainant is likely to have a claim on the JSE • Consistent and sufficient redress powers for all of Guarantee Fund. the ombuds in the financial ombud system (and, if differing maximum limits are deemed necessary, Effectiveness of Interaction and Powers there should be a logical link to specific categories Overall of product readily understandable by consumers) We consider that there are material inconsistencies and deficiencies in the definitions of what • Consistency in how far financial ombud decisions constitutes a complaint, relevant obligations for are binding on the parties, and consistency in the financial providers, redress a financial ombud availability of effective mechanisms and support for complainants in enforcing those decisions 82 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 10 INDEPENDENCE This chapter considers the implementation across the ombud system of independent governance arrangements designed to ensure redress that is visibly objective, impartial, and unbiased. 10.1 CRITERIA • Does the independent board have power to make changes to the scope and powers of the financial Impartiality is underpinned by demonstrable ombud scheme without the financial industry or independence. This chapter considers how far consumer bodies having a veto? the independence of individual ombud schemes • Does the ombud scheme have and control its own is guaranteed by their formal governance resources and funding? arrangements • Is any financial ombud chosen in a way that instills • For the industry ombud schemes, this means the public confidence? following: • Are they appointed on terms that secure their - The constitutional documents establishing each independence from those who appointed them, ombud scheme the financial industry, consumer bodies, financial - The terms of reference (or rules) under which regulators, and politicians?173 it operates • Are the ombuds free to resolve cases on their • For each statutory ombud scheme, this means the merits, without fear or favor—and free from legislation influence/direction by parties, financial regulators, or politicians? - Establishing it; and We also take into account that the FSOS Act - Under which it operates. called on the FSOS Council, before granting recognition of an ombud scheme, to consider We consider, and compare with international a number of requirements,174 including the good practice, the structures designed to ensure following: the independence of any board, the individual ombuds, and the resources available to the • A body that is not controlled by participants in ombud scheme. the scheme must appoint the ombud, set their remuneration, and monitor their performance and • Is there an independent board—to provide the independence. financial ombud with essential support and accountability? • The procedures of the scheme must enable the ombud • Are the board members chosen in a way that instills public confidence? - To resolve complaints through mediation, conciliation, recommendation, or • Are they appointed on terms that secure their determination; and independence from those who appointed them, the financial industry, consumer bodies, financial - To act independently in resolving a complaint regulators, and politicians? or in making a determination. 10. INDEPENDENCE | 83 • The scheme must have sufficient human, - Banks are deemed to be members of the financial, and operational resources, funded by the company for so long as they remain members participants in the scheme, to enable the ombud to of the BASA. function efficiently and in a timely manner. - The member banks elect eight board members Our assessment focuses on what is guaranteed by (and alternates) comprising: the formal governance arrangements of the ombud schemes. It is important to note the following: - As chair, a judge or other appropriate statutory office or retired judge or other appropriate • All the ombud schemes were successfully created statutory office (or, if a suitable candidate in the context of a complex commercial, social, cannot be found, a senior advocate) selected and political environment with some particular by the board; challenges in the past. - Three banking directors, representatives of • What constitutes international good practice for the banking sector in South Africa, nominated ombud schemes has evolved since the existing by the board of the BASA; and schemes were established. - Four independent directors, independent of • We have sought to give appropriate weight to the banking sector in South Africa, nominated instances where the schemes informed us that by the company’s board (if six of eight they had adopted new standards in practice, even directors vote in favor). though these are not reflected in their formal arrangements. - The directors are appointed for a term of three years and can be reappointed for one further • In the future ombud system it is, of course, term of three years. important that good practice should be guaranteed by the formal governance arrangements. The board has the following powers: - ­ • None of our comments should be taken as - To appoint the ombud (if six of eight directors any criticism of the individuals working vote in favor) conscientiously within the existing governance - To dismiss the ombud (if the chair is present arrangements of the current schemes. and six of eight directors vote in favor) • The four schemes175 that have their own governing - To approve changes to the terms of reference bodies appear to have successfully attracted to (if six of eight directors vote in favor) those bodies in practice a wide and diverse range of talented members. - To approve the budget 10.2 BANKING OMBUD - To consider the annual report by the ombud and provide comments The Banking Ombud is registered as a nonprofit - To make recommendations on amendments to company called the “Ombudsman for Banking the Banking Code Services NPC.” - The ombudsman has overall responsibility for • Under the company’s memorandum of the conduct of the day-to-day administration of incorporation: the company, including hiring employees. - The object of the company is to provide customers of participating banks with a dispute- resolution mechanism. 84 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Under the company’s charter: - Are not a professional advisor of the company, a participating bank, or group, other than in - The composition of the board should reflect the the capacity as a director; need to ensure the independence of the company from the influence of the banking sector and the - Are not a significant supplier to, or customer bank members (on the one hand) and to advance of, a participating bank or group; the interests of the customers of the participating banks (on the other). - Have no significant contractual relationship with a participating bank or group; and - The board should establish a formal and transparent procedure for appointments to the - Are free from any business or other board. relationship that could be seen to interfere materially with the individual’s capacity to - Directors must declare any possible conflict of act in an independent manner. interest and not participate in a discussion or vote on the subject matter. • Under the company’s terms of reference: - Candidates for membership on the board should - The ombud acts independently and objectively in resolving disputes and is not influenced by - Have the ability to make informed decisions; anybody in making decisions. - Be able to think strategically; - The ombud enjoys security of tenure and can be dismissed only on the ground of incompetence, - Be able to appreciate the wider banking gross misconduct, or inability to carry out his or context and perspective; her duties effectively. - Have integrity in personal and business - The ombud cannot be dismissed for being dealings; unpopular with the banks or the consumer - Be objective at all times about what is in groupings. the best interest of the ombud scheme, • The company says that smaller banks and those participating banks, and their customers; and with fewer than 50 complaints per year pay a - Have sufficient time available to carry out fixed annual membership fee, and that the six their duties and responsibilities. larger banks (in size and number of complaints) pay a fee that is calculated in accordance with - Independent directors are directors who their percentage of the total number of complaints received. - Are not representatives of any participating bank; The following features of the formal governance arrangements of the Banking Ombud appear to - Have not been employed by a participating fall short of current best international practice bank or the group of which it currently on independence: forms part in any executive capacity for the preceding three financial years; • The board: - Are not a member of the immediate family of - The charter says the board should establish an individual who is, or has been in any of a formal and transparent procedure for the past three financial years, employed by a appointments to the board, but the company participating bank or its group in an executive informs us that posts are not publicly advertised. capacity; 10. INDEPENDENCE | 85 It says that advertising is by word of mouth 10.3 CREDIT OMBUD among present and past board members, stakeholders, and industry and that there is a The Credit Ombud is established as an rigorous interview process. association (comprising a legal entity distinct from its members) called the “Credit Ombud - Non-bankers comprise a five-to-three majority Association.” Under its constitution: on the board. But the specified majority of six board members out of eight for amending • The purposes of the association are to resolve the terms of reference and for nominating disputes effectively within the credit industry and independent directors has the effect of giving the to provide consumer education to the public on banking members a veto (if they act together). the role and functions of the Credit Ombud and on matters of a general financial nature. - Once nominated by the board, the independent directors have to be elected by the members, • The association which are all banks (though the company informs us that this is merely a formality). - Will not take sides and will remain impartial at all times; • The ombud: - Will act independently and objectively; - There is no requirement for a transparent recruitment process, following a public - Will have regard to the law, fairness, justice, advertisement, though the company informs us equity, and fundamental human rights and that this is done in practice. values as prescribed by the principles of “Ubuntu”;176 and - The specified majority of six board members out of eight for appointing the ombud has the - Must balance the rights of consumers and the effect of giving the banking members a veto (if rights of the members. they act together). • The association and the ombud - Someone who has worked in a financial - Must be free from undue influence by any provider (or a financial industry body) in the individual or organization; and previous three years is not prevented from being appointed as ombud, so someone who is - Will act independently and objectively in currently a banker could be appointed as ombud. resolving disputes and will not be influenced by anybody in making decisions. - There is no requirement that the ombud be appointed for a term of at least five years, • Membership of the association is open to the though the company informs us that this is done following: in practice. - Registered credit providers - There is no requirement that the ombud is told at least one year before the end of their term - Registered credit bureaus whether they are to be reappointed. - Subscribers who contract with the credit bureaus - The ombud’s rate of pay is not protected by being to submit consumer credit information linked to some appropriate external objective benchmark (for example, an equivalent grade of - Any other entities approved by the association’s judge or other appropriate statutory office). council 86 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • The council comprises between three and seven - Has security of tenure and can be dismissed members, covering the following three groups: only for incompetence, gross misconduct, or inability to carry out their duties effectively; - Up to two independents - Serves for a term of five years and may be - Up to two representatives nominated by reappointed for a further three years; consumer bodies - May have their term extended beyond that only - Up to three representatives nominated by the with the approval of the FSOS Council; credit industry - Has power to do what is necessary to give effect • The council to all of the objectives of the association; and - Elects the council members, for five-year terms; - Is responsible for ensuring that the mandate and - ­ Chooses its own chair and deputy chair; strategic objectives approved by the council are effectively implemented. - Is required to facilitate the provision of independent, equitable, speedy, and cost- • The role and responsibilities of the ombud include effective resolution of disputes between credit the following: receivers and the members of the association; - Operational performance - Is responsible for appointing the ombud; - Management oversight - If requested by the ombud, may appoint a - Developing annual plans and budgets deputy ombud; - Appointing and managing personnel - Fixes the funding to be provided by the members and must ensure that it is sufficient to enable the - Fostering a corporate culture that promotes Credit Ombud to function efficiently and in a ethical practices and individual integrity and timely manner, and that the independence of the fulfills a social-responsibility objective ombud is free from any undue influence; and • The ombud and employees are - Can amend the constitution by a two-thirds majority. - Entirely responsible for the handling and determination of complaints; • The council and its members - Accountable only to the council; and - Carry full fiduciary responsibility; - Adequately resourced to carry out their - Must act in good faith and in the best interests of respective functions. the association; and • The council carries out a formal evaluation of the - Avoid any conflict of interest. ombud each year, which must be • The ombud - Based on objective criteria agreed beforehand between the council and the ombud; and - Must have the relevant qualifications, competence, knowledge, and experience; - Used by the council when considering the ombud’s pay. 10. INDEPENDENCE | 87 The following features of the formal governance • Under the association’s constitution: arrangements of the Credit Ombud appear to fall short of current best international practice - The mission of the association is to mediate in on independence: disputes between subscribing members of the industry and policyholders. • The council: The following are not required, though the association informs us that they are - The members of the association are the done in practice: following: - ­ Transparent recruitment process, following a - The chair of the council public advertisement - The chair of the committee - Requirement that the chair is not one of the - The ombud credit industry members - The deputy ombud • The ombud: - Any assistant ombuds - There is no requirement for a transparent recruitment process, following a public - The finance and operations officer advertisement, though the association informs us that this is done in practice. - The subscribing members of the industry are those members of the long-term insurance - Someone who has worked in a financial industry who subscribe to the rules of the provider (or a financial industry body) in the association. previous three years is not prevented from being appointed as ombud, so an existing credit - The council’s purpose is to facilitate the industry professional could be appointed as provision of independent, equitable, speedy, and ombud. It is notable that a previous ombud was cost-effective mediation between complaining appointed straight from working for the BASA policyholders and subscribing members of the for 11 years. industry. Its functions include the following: - There is no requirement for the ombud’s rate of pay - (After consultation with the committee) to be protected by being linked to an appropriate appointing or reappointing the ombud and external objective benchmark (for example, an deputy ombud and settling the terms and equivalent grade of judge or other appropriate conditions of their employment statutory office), though the association informs - (After consultation with the committee) us that this is done in practice. approving the budget - There is no requirement for the ombud to be - (After consultation with the committee) told at least one year before the end of their term approving any changes to the rules and policy whether they are to be reappointed, though the guidelines governing the ombud’s powers and association informs us that this is done in practice. activities to ensure that they comply with the association’s purpose 10.4 LTI OMBUD - Monitoring, maintaining, and promoting the The LTI Ombud is established as an association ombud’s independence (comprising a legal entity distinct from its members) called the “Long-Term Insurance - The committee concerns itself primarily with Ombudsman’s Association.” the efficient operations of the association. Its functions include the following: 88 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC - Commenting on the budget and recommending - Can do anything that is necessary or to the council appropriate mechanisms for expedient for the running of the association, financing operational costs which may include issuing guidelines for the implementation and application of the rules. - Communicating industry views on any operational issues, including the efficiency of - The ombud, the deputy ombudsman, and any the service rendered assistant ombuds have authority to give rulings relating to the complaint-handling process. - Acting as a consultative body to the council on the appointment of the ombud, the terms - Amendments to the constitution require a of appointment of the ombud and of senior resolution by the members and approval by the staff, any change to the rules under which council after consultation with the committee. the ombud operates, and any extension or limitation of the ombud’s jurisdiction • Under the council’s constitution: - The ombud must seek to ensure that - The council consists of between five and 11 members. - They act independently and objectively in advising on any complaint received and take The ombud and the chair of the committee are - ­ no instructions from anybody regarding the members ex officio. exercise of their authority. - The FSB (now, in effect, the FSCA) can - The subscribing members of the industry act nominate (and change) one member. with fairness and with due regard to both the - The other members are appointed by the council letter and spirit of the contract between the in their personal capacity parties and render an efficient service to those with whom they contract; - Having regard to the knowledge and skills required by the association and the need - They keep the scale in balance between the to represent the broad public interest and rights of the policyholders on the one hand promote public confidence; and and the rights of the subscribing members on the other; and - For a term of three years and are eligible for reappointment for successive terms of three - Due weight is accorded to considerations of years. equity. - Each member of the council is obliged to act in - The ombud reports to the council and the the best interests of the association. committee on matters covered by their respective functions. • Concerning the committee: - The ombud and deputy ombud - It comprises representatives from various life offices that are subscribing members. - Have overall responsibility for the conduct of the day-to-day administration and business of - Its chair is an ex officio member of the council. the association; • Under the current ombud’s employment contract: - Appoint employees and determine all matters relating to their conditions of service and - The ombud has security of tenure and in remuneration; and particular will not be liable to dismissal on the grounds of decisions that may be unpopular with insurers or consumer groups. 10. INDEPENDENCE | 89 - The ombud may be dismissed for incompetence, - The requirement for the council to consult gross misconduct, inability to carry out their the committee on appointment of the ombud duties effectively, or any ground recognized as could give the appearance that the committee good cause by law. (comprising only industry members) has an influence over the appointment. - If health or any other vitally important consideration renders it impossible or ill - Someone who has worked in a financial advisable for the ombud to complete their provider (or a financial industry body) in the agreed term of office, the appointment may be previous three years is not prevented from being terminated on six months’ notice by either side. appointed as ombud, so an existing insurance industry professional could be appointed as • The association says the following: ombud. In practice, over its 35-year history, the - Ten to twelve percent of its funding is by levy. LTI Ombud has always been a retired judge. - The balance is by case fees. - There is no requirement for the ombud to be appointed for a term of at least five years, - It bills insurers an amount based on a projected though the association informs us that this is charge per case and the projected case volumes done in practice. plus the levy. - There is no requirement that the ombud is told The following features of the formal governance at least one year before the end of their term arrangements of the LTI Ombud appear to fall whether they are to be reappointed. short of current best international practice on independence: - There is no requirement that the ombud’s rate of pay is protected by being linked to an appropriate • The Council: external objective benchmark (for example, an equivalent grade of judge or other appropriate - There is no requirement that appointments of statutory office), though the association informs council members are to be by a transparent us that this is done in practice. process following a public advertisement, though the association informs us that this is 10.5 STI OMBUD done in practice. - There is no requirement that a majority of The STI Ombud is registered as a nonprofit council members are not associated with the company called the “Ombudsman for Short- industry, though (apart from the ex officio Term Insurance NPC.” members) members are chosen by the council, • Under the company’s memorandum of and only two of nine of the current council come incorporation: from the industry. - The objects of the association are the following: - There is no requirement that the chair is not associated with the industry, though the - To comply with the requirements for association says that in practice the chair has recognition as an industry scheme under the always been a judge or retired judge. FSOS Act • The ombud: - To serve the interests of the insuring public and of the insurance industry, which includes all - There is no requirement for a transparent registered insurers and Lloyd’s underwriters recruitment process, following a public and their intermediaries advertisement, though the association informs us that this is done in practice. 90 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC - To receive and consider any complaints - The election and appointment of the arising as a result of a dispute between a ombudsman policyholder and a member - Changes recommended by the ombud to the - Membership of the company is open to the ombud’s terms of reference following: - The creation of the budget - Registered insurers that underwrite short-term insurance business - Contributions to the budget payable by members - The representative of Lloyd’s designated under the Short-term Insurance Act - Ensuring compliance by the company with the FSOS Act - Intermediaries - The budget is prepared by the ombud and - The members elect a board of 11 members, approved by the board. to serve terms of three years, comprising the following: - The cost is shared by the members prorated to the number of registered complaints against - Two independent non-executive directors each member, or according to some other appointed from a list compiled by the ombud formula approved by the board. in consultation with every member of the board and who, by virtue of their training, - The ombudsman is appointed by the board and expertise, experience in the business world, must and stature in the community, are able to add - Have been qualified as an attorney or advocate to the standing of the company in the eyes of for at least 15 years, or be a former High Court all its stakeholders judge; and - Four directors representing consumers - Have had at least seven years’ involvement appointed from a list of the most appropriate with the short-term insurance industry in candidates compiled by the ombud in whatever capacity is approved by the board. consultation with current consumer directors on the board - The ombudsman - Three directors representing the members - Is appointed for between three and five years; appointed from a list of those nominated by the chief executive officers of members - May be reappointed for not more than a further five years in total; - One director representing the SAIA, appointed ex officio - Can be removed from office by a majority vote of the board; and - One director representing the FSB (now, in effect, the FSCA), appointed ex officio - Is entitled to receive payment of reasonable remuneration. - The board elects its chair and deputy chair annually. The chair must be one of the - If requested by the ombud, the board may independent directors. appoint a deputy ombudsman. - The board has power to make (and change) - The ombudsman has power to appoint staff at such rules on, among other things, the following: remuneration and on such other terms deemed fit within the budget constraints of the company. 10. INDEPENDENCE | 91 - The memorandum of incorporation can be - There is no explicit requirement in the amended by a special resolution of members governance documents for board members to proposed by the board or by at least 10 percent act in the public interest, though the company of the voting members. informs us that in practice they always do so. • Under the company’s terms of reference: • The ombud: - The ombud has overall responsibility for the - There is no requirement that the appointment day-to-day administration and business of the of the ombud is to be by a transparent process company. following a public advertisement, though the company informs us that this is done in - The ombud has the following powers: practice. - To appoint an administrator, responsible to - Someone who has worked in a financial the ombud provider (or a financial industry body) in the - To appoint and dismiss employees, consultants, previous three years is not prevented from legal experts, independent contractors, and being appointed as ombud, so an existing agents and to determine their salaries, fees, insurance industry lawyer could be appointed terms of employment, or engagement as ombud. Indeed, the requirement for the ombud to have had at least seven years’ - To incur expenditure in accordance with the involvement with the short-term insurance budget approved by the board industry makes that more likely. • Under the current ombud’s employment contract: - There is no requirement that the ombud be appointed for a term of at least five years. - The ombud has security of tenure and in (They can be appointed for between three and particular will not be liable to dismissal on the five years.) grounds of decisions that may be unpopular with insurers or consumer groups. - There is no requirement for the ombud to be protected against removal except for incapacity, - The ombud may be dismissed for incompetence, misconduct, or other just cause, though the gross misconduct, inability to carry out their company informs us that this is the case in duties effectively, or any ground recognized as practice and is reflected in the ombud’s contract. good cause by law. - There is no requirement that the ombud is - If health or any other vitally important told at least one year before the end of their consideration render sit impossible or ill term whether they are to be reappointed. It is advisable for the ombud to complete their notable that none of the previous four ombuds agreed term of office, the appointment may be was reappointed. terminated on six months’ notice by either side. - There is no requirement that the ombud’s rate of The following features of the formal governance pay is protected by being linked to an appropriate arrangements of the STI Ombud appear to fall external objective benchmark (for example, an short of current best international practice on equivalent grade of judge or other appropriate independence: statutory office), though the company informs us that this is done in practice: • The board: - There is no requirement that appointments of board members are to be by a transparent process following a public advertisement. 92 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 10.6 JSE OMBUD - Appoints as ombud a person who is qualified in law and possesses adequate knowledge of The JSE Ombud is an individual appointed on the rendering of financial services; a case-by-case basis under the rules of the JSE. - May appoint as deputy ombud one or more Under those rules: persons who is qualified in law and possesses • A case will be referred by the JSE’s company adequate knowledge of the rendering of secretary to a duly appointed ombud for financial services; consideration. - May, on good cause shown, remove the ombud • The JSE will appoint the ombud, who must be a or a deputy ombud from office on the ground retired High Court judge or a senior counsel. of misbehavior, incapacity, or incompetence after affording the person concerned a • The ombud controls the process of the case and reasonable opportunity to be heard; and makes a decision. - May set maximum limits for the amount of • There is no separate budget and funding. compensation that the ombud can award. There is no independent board or council and little - The remuneration of the ombud, and any deputy independence in the appointment of the ombud. ombud, is set by • Appointment is by the JSE, which is a self- - The commissioner of the FSCA until March regulatory organization and of which the financial 31, 2022; and provider is a member. - The minister from April 1, 2022.178 • The ombud has security of tenure for only one case at a time, although a retired High Court judge - The budget is approved by or a senior counsel will be seen to be personally - The commissioner of the FSCA until March independent. 31, 2022; and 10.7 FAIS OMBUD - The minister from April 1, 2022.179 The FAIS Ombud is established by chapter VI, - The commissioner of the FSCA has power to part I, of the FAIS Act and called the “Ombud make rules on180 for Financial Services Providers.” There are - Which complainants are eligible to use the some similarities to, and some differences from, the ombud; provisions in the legislation establishing the PFA. - Types of complaints covered by the ombud • Under the FAIS Act, as amended by the FSR (which may include complaints about a Act:177 financial service provided by an unauthorized - The Office of the Ombud for Financial Services person); cannot be disestablished or liquidated except by - How financial providers should handle an act of Parliament. complaints; and - The Ombud for Financial Services is declared - Payment of case fees by authorized providers to be a statutory ombud scheme for the purposes of the FSR Act. but must ensure no rule detracts from, or affects the independence of, the ombud in any material - The minister way. 10. INDEPENDENCE | 93 - The ombud - Someone who has worked in a financial provider (or a financial industry body) in the - Decides whether a case is within the previous three years is not prevented from being jurisdiction set by rules; appointed as ombud, so an existing financial - Decides the outcome of cases—subject to industry professional could be appointed as review by the Financial Services Tribunal; ombud. - When dealing with complaints, is independent - There is no explicit requirement for the and must be impartial;181 ombud to be appointed on terms that secure their independence; in particular, there are no - Can employ staff, determine their terms of requirements for appointment, and assign duties to them; and - The ombud to be appointed for a minimum - Is the accounting authority under the PFM term of five years; or Act.182 - The ombud’s rate of pay to be protected - The auditor-general audits the accounts. by being linked to an appropriate external objective benchmark (for example, an - Under Rule 2(a) of the Rules on Proceedings equivalent grade of judge or other appropriate of the Office of the Ombud for Financial statutory office). Services Providers of 2003, in disposing of a complaint, the ombud acts independently and - The ombud can be removed by the minister objectively and takes no instructions from any for misbehavior, incapacity, or incompetence person regarding the exercise of authority. after being heard but without the additional procedural safeguards (independent inquiry and - Under the FSB Act and the Financial Sector a report to the National Assembly) that apply, Regulations of 2018, the FSCA sets a levy, for example, to the removal of a member of the for funding the FAIS Ombud, payable by Ombud Council under the FSR Act. providers authorized under the FAIS Act. - There is no requirement that the ombud is told The following features of the formal governance at least one year before the end of their term arrangements of the FAIS Ombud appear to fall whether they are to be reappointed, though the short of current best international practice on ombud informs us that this is done in practice. independence: - From April 1, 2022, the budget has to be • There is no independent board/council of the approved by a politician. ombud scheme (along the lines described in section 10.1 of this chapter) to provide the 10.8 PFA financial ombud with essential support and accountability.183 The PFA is established by chapter VA of the PF Act • The ombud: (as amended) and called the “Office of Pension Funds Adjudicator.”184 There are some similarities - The appointment is made by a politician. to, and some differences from, the provisions in the legislation establishing the FAIS Ombud. - There is no requirement for the appointment to be by a transparent process following a public • Under the PF Act (as amended):185 advertisement, though the ombud informs us that this is done in practice. - The PFA is declared to be a statutory ombud scheme for the purposes of the FSR Act. 94 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC - The Office of the Pension Funds Adjudicator - Decides the outcome of cases—subject to cannot be liquidated except by an act of review by the Financial Services Tribunal; Parliament. - Can employ staff and assign duties to them; - The minister and - Appoints186 - Is the accounting authority under the PFM Act.190 - An adjudicator, and • Under the FSB Act and the Financial Sector - One or more deputy adjudicators; Regulations of 2018, the FSCA sets a levy, for All of whom must funding the PFA, payable in respect of pension funds registered (or provisionally registered) - Have practiced as an advocate or attorney under the PF Act. for 10 years, or The following features of the formal governance - Have taught law for 10 years and have arrangements of the PFA appear to fall short practiced as an advocate or attorney, or of current best international practice on independence: - Possess other suitable experience; • There is no independent board/council of the and are appointed for not more than three ombud scheme (along the lines described in section years (which may be renewed); 10.1 of this chapter) to provide the adjudicator with essential support and accountability.191 - May remove the adjudicator or deputy adjudicator from office on the grounds of • The adjudicator: misbehavior, incapacity, or incompetence after consultation with the FSCA; and - The appointment is made by a politician. - Makes regulations about the processes - There is no requirement that the appointment is and procedures to be applied by the to be by a transparent process following a public adjudicator.187 advertisement, though the PFA informs us that this is done in practice. The budget is approved by - Someone who has worked for a financial - The commissioner of the FSCA until March provider (or a financial industry body) in the 31, 2022; and previous three years is not prevented from being appointed as ombud, so an existing - The minister from April 1, 2022.188 financial industry lawyer could be appointed as The remuneration of the adjudicator adjudicator. and deputy adjudicator are set, and the - There is no explicit requirement that the remuneration of other staff is agreed, by adjudicator be appointed on terms that secure - The commissioner of the FSCA until March their independence. 31, 2022; and - The adjudicator is appointed for three years, - The minister from April 1, 2022.189 rather than five. - The adjudicator - The adjudicator can be removed by the minister on the grounds of misbehavior, incapacity, - Decides whether a case is within jurisdiction; or incompetence after consultation with the 10. INDEPENDENCE | 95 FSCA but without the additional procedural • They acknowledged that direct funding of the safeguards (independent inquiry and a report to industry schemes by industry participants could the National Assembly) that apply, for example, create a public perception that the schemes were to the removal of a member of the Ombud not truly independent of the industry. But they Council under the FSR Act. noted that the governance arrangements mean that these schemes are in fact independent. - There is no requirement for the adjudicator be told at least one year before the end of their term • A few commented that in some cases they felt the whether they are to be reappointed. ombud’s views tended to tilt toward the consumer, rather than being evenhanded. - There is no requirement for the adjudicator’s rate of pay to be protected by being linked to an • A significant number of stakeholders (mainly appropriate external objective benchmark (for but not exclusively from the industry) were also example, an equivalent grade of judge or other concerned that the ombud system should be appropriate statutory office). demonstrably independent from politicians and government. - From April 1, 2022, the budget and the pay and employment terms of all staff have to be approved by a politician. 10.10 CONCLUSIONS - A politician can set the processes and procedures Company/Association/Statutory Body to be applied by the adjudicator. Table 10A summarizes the corporate structure of the various ombud schemes: The fact that four 10.9 STAKEHOLDER VIEWS of them “belong” to industry members risks the perception that they are not independent. Below, Stakeholders all agreed that the ombud system in the context of boards/councils, we consider the should be demonstrably independent. extent to which they are actually independent. • Industry stakeholders accepted that consumer trust and confidence required independence from the financial industry. Table 10A. Independence—Company/Association/Statutory Body Banking Credit LTI STI JSE FAIS PFA Ombud Ombud Ombud Ombud Ombud Ombud Company (nonprofit) with industry members   Association with industry members  Association without industry members  Self-regulatory organization with industry members  Statutory office   96 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Board/Council - Where (as in two of the ombud schemes) non-industry board/council members, even if Four of the ombud schemes have their own nominated by another mechanism, must be board/council; three do not. A board/council elected by the industry members of the scheme can help support the independence of the ombud itself (where the ombud may need to resist external pressure in deciding cases) and provide a source - Where (as in two of the ombud schemes) the of constructive accountability in the management chair of the board/council could be one of the of the scheme. The two statutory ombud schemes industry members of the board/council—though do not have boards/councils of their own (unlike they inform us this does not happen in practice statutory ombud schemes in other countries, such as the United Kingdom and Ireland), nor does the - Where (as in one of the ombud schemes) there JSE Ombud. are provisions for special majorities that result in the industry members of the board/council In respect of the four ombud schemes that have (if they act together) having a veto on some boards/councils, table 10B summarizes key decisions aspects. • None of the ombud schemes bars serving financial • Recruitment of board/council members by regulators from the board/council, and two of the a transparent process, following a public ombud schemes have regulators as board/council advertisement, is more likely to ensure the members. diversity of the board/council and exploration of new ideas. As the table shows, this is not the - This creates the risk of confusion between the universal practice. very different roles of regulator and dispute resolver and, occasionally, the risk of tensions • In all of the schemes, industry members form a if a run of ombud decisions has prudential minority of the board/council. But the following implications for a particular provider. situations undermine the perceived independence of the board/council: Table 10B. Independence—Board/Council Y = Yes, in the constitutional documents = See footnote Banking Credit LTI STI JSE FAIS PFA N = No, not in the constitutional documents Ombud Ombud Ombud Ombud Ombud Ombud P = No, but the body says it does in practice Is there a board/council? Y Y Y Y N N192 N193 Are posts advertised? 194 P P N N/A N/A N/A Nominated from different constituencies?195 Y Y Y Y N/A N/A N/A Elected by the board/council? N Y Y N N/A N/A N/A Not elected by industry members? N Y Y N N/A N/A N/A Term of at least three years? Y Y Y Y N/A N/A N/A Industry members a minority? Y Y P Y N/A N/A N/A Chair cannot be an industry member? Y P P Y N/A N/A N/A Can change rules/terms of reference? 196 197 Y Y N/A N/A N/A 10. INDEPENDENCE | 97 Table 10C. Independence—Ombud Y = Yes, in the constitutional documents  = See footnote Banking Credit LTI STI JSE FAIS PFA N = No, not in the constitutional documents Ombud Ombud Ombud Ombud Ombud Ombud P = No, but the body says it does in practice Is the post advertised? P P P P N P P Appointed by the board/council? 198 Y Y Y 199 N N Appointed by independent body, not a Y Y Y Y Y N N politician? Appointee from the industry barred? N N N N Y N N Appointed for at least five years? P Y P N P N N Told a year before if not to be reappointed? N P N N N P N Can be dismissed only for good cause? Y Y Y P P Y Y Dismissal by board/council? Y Y Y Y N N N Cannot be dismissed by a politician? Y Y Y Y Y N N Pay linked to external objective benchmark? N P P P N N N Hires and controls employees? Y Y Y Y N Y 200 - This does not mean that there should not be • The best choice of qualified candidates is likely appropriate lines of two-way communication to come from a transparent recruitment process, between ombud schemes and financial following a public advertisement. As the table regulators, consistent with their differing shows, this is not a specified requirement in any independent roles, as we discuss in chapter 14 of the schemes, and not every scheme does so in (Openness). practice. • None of the ombud schemes bars serving • The independence of the mechanism for politicians from the board/council. If a serving appointing the ombud (and dismissing an ombud politician could be a board/council member, there for good cause) is a key aspect of demonstrating is a risk that the board/council might become the independence of the ombud who is appointed. associated with external controversies or be perceived to be susceptible to political influence. - In four of the schemes, the ombud is appointed by the board/council (and may be dismissed by the Ombud board/council for good cause). This is appropriate if the board/council is itself independent and able The impartiality of the ombud should be to act independently. We have already set out underpinned by the ombud’s demonstrable some issues in relation to this. independence from the financial industry, consumer bodies, financial regulators, and - In two of the schemes, the ombud is appointed politicians. Table 10C summarizes key aspects. by a politician (and may be dismissed by a politician for good cause but without the additional procedural safeguards afforded to members of the Ombud Council).201 98 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC - In the remaining scheme, the ombud is appointed Budget/Funding on a case-by-case basis by the membership- In accordance with international good practice, based self-regulatory organization. None of the an ombud scheme needs to control sufficient three is demonstrably independent. resources. In order to operate independently and • Once appointed, the ombud’s independence effectively, it needs to control its own budget and should be underpinned by security of tenure. funding—though whether funding comes from levies, case fees, or a combination of the two is best - International good practice suggests a minimum decided in the light of local conditions. term of five years. One of the ombud schemes is required, by its constitutional documents, to • Levies are paid by all financial providers within provide this. Three are not required to provide the jurisdiction of an ombud scheme. This it but say they do in practice. Three do not funding source provide it. - Gives the ombud scheme a reasonable degree - International good practice suggests an existing of certainty about the amount of funding it will ombud should be told whether their term is to be receive each year; renewed at least one year before the end of their - Gives financial providers a degree of stability current term. None of the schemes is required, and predictability of the amount payable, by their constitutional documents, to do this. enabling them to budget ahead; and Only two say that they do it in practice. - Reflects the increased consumer confidence • None of the schemes is required, by its that all financial providers benefit from when constitutional documents, to protect the ombud’s consumers know there is somewhere they can pay by linking it to an external objective go if things go wrong. benchmark (such as an equivalent level of judge or other appropriate statutory office), and only • Case fees are paid by financial providers against three say that they do so in practice. which complaints are referred to the ombud scheme. This funding source • In all of the schemes, in line with international good practice, the ombud is free to employ staff - Creates a significant degree of uncertainty for and set their duties. In all but one of the schemes, the ombud scheme about the amount of funding the ombud sets they pay of such staff, within the it will receive; approved budget. In the PFA, from April 1, 2022, staff pay has to be agreed by a politician. Table 10D. Independence—Budget/Funding Banking Credit LTI STI JSE FAIS PFA Ombud Ombud Ombud Ombud Ombud Ombud Budget approved by board/council?     Budget approved by politician? 202 203 Providers pay levy (usually based on size) 204     Providers pay fees (based on number of cases) 205   No separate budget or funding  10. INDEPENDENCE | 99 - Creates a degree of volatility in the amounts that Independence overall will be payable by financial providers, making The existing governance arrangements cover it more difficult for them to budget ahead; but many of the features of international good - Reflects the workload that those financial practice designed to demonstrate independence providers generate for the ombud scheme, of operation and decision-making. irrespective of the outcome of cases. • Casework decisions are reserved to the ombuds • Internationally, some ombud schemes balance by the governance documents of the industry these factors by schemes and the legislation covering the statutory schemes. - Charging all financial providers a combination of levies and case fees (for example, raising half • The four main industry ombud schemes have their funding by levies and half by case fees); or boards/councils with a diversity of well-qualified and experienced members, well able to stand up - (To simplify levy collection) charging larger for the scheme’s independence. providers a levy plus (lower) case fees and smaller providers just a (larger) case fee. • Only a minority of the members of the boards/ councils are from the industry, and all the chairs Table 10D shows existing arrangements in South are currently independent of the industry. Africa for budget approval and funding. • Individual industry schemes have also adopted • In the two statutory schemes, the budget is various practices to bolster public perception of currently approved by the FSCA, but from their independence, such as appointing a retired April 1, 2022, it will be subject to approval by judge as ombud and/or as chair of the board/ a politician. In four of the industry schemes, the council. budget is approved by the board/council. There is no separate budget for the JSE Ombud scheme. • They were all recognized by the FSOS Council as having independently appointed ombuds, • The STI Ombud scheme is funded by fees based free to act independently in resolving cases, and on the number of cases. The Credit Ombud, FAIS sufficient resources to function efficiently and in Ombud, and PFA are funded by levies (usually a timely manner. based on provider size). The Banking and LTI Ombud schemes are funded by a combination of Nevertheless, as described in this chapter, there both. The JSE Ombud is funded out of the JSE are some material inconsistencies (and some budget provided by industry members. deficiencies) in the mechanisms to underpin the independence of the ombud schemes and • All of the ombud schemes are funded by the ombuds. Some of the current practices of the industry (and, arguably, ultimately by customers ombud schemes may go some way to mitigate these through the charges they pay to financial deficiencies, but we do not think that relying on providers), but where (as with the statutory good practice is a substitute for ensuring that proper schemes) the levy is set by the regulator, the protections are built into the formal governance perception of independence from the industry frameworks. Moreover, the statutory schemes lack appears to be higher. an independent governing body to appoint the ombuds and help protect their independence. 100 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Areas for potential improvement include - Include an independent chair and exclude incorporation of formal requirements that serving politicians and regulators. ensure the following: • That the independent governing body has power • That the ombud is to - Appointed by, and accountable to, a governing - Approve the budget; and body that is itself demonstrably independent; - Make changes to the scope and powers of - Is chosen by a transparent and public recruitment the ombud scheme, subject to any regulatory process so as to instill public confidence; and approvals. - Appointed on terms that secure their • That in exercising its powers, the independent independence from those who appointed governing body will at all times have regard to the them, the financial industry, consumer bodies, importance of financial regulators, and politicians. - Preserving the independence, integrity, and • That the governing body’s members fairness of the decision-making process; and - Are chosen in a balanced and independent way - Ensuring that the scheme is appropriately that instills public confidence—and not chosen resourced to carry out its objectives in a timely by industry members; and efficient manner. - Are appointed on terms that secure their • That the ombud scheme has, and controls, its own independence from those who appointed resources and funding. them, the financial industry, consumer bodies, financial regulators, and politicians; 10. INDEPENDENCE | 101 11 ACCESSIBILITY This chapter assesses the extent to which the financial ombud system is well known and accessible to all types of consumers throughout South Africa. 11.1 CRITERIA 11.2 FRAGMENTATION This involves assessing how far the financial The existing fragmentation of the ombud system ombud system is well known, easy to use, and (with seven separate schemes) has inevitable free for consumers. Issues to consider include the implications for the system’s visibility and following: accessibility. • Are financial providers required to tell customers • There is no common “brand” to promote. The in writing about the relevant financial ombud limited outreach resources available to the scheme? individual ombud schemes do not appear to be operated collectively. Combined resources, • Does each financial ombud scheme provide on working behind a common “brand,” would be its own website comprehensive information that able to achieve more. enables the parties to understand the ombud scheme’s enquiry and case-handling process? • Similarly, each of the ombud schemes has its own (differing) approach to accessibility, including • Does the financial ombud scheme ensure that how the scheme can be contacted, how complaints information is also readily available to potential can be submitted, provision for complainants who complainants who do not have access to the are vulnerable/disadvantaged or disabled, and internet? language issues. • Does the financial ombud scheme take active • As part of their “soft merger,” the LTI Ombud and steps to make its services visible and accessible the STI Ombud have linked their websites and to consumers (especially vulnerable and phone systems, though they still have to maintain disadvantaged consumers)? their separate identities externally pending • Can consumers refer a complaint to the financial availability of the Ombud Council to approve a ombud free of charge, so that cost does not form a full merger. barrier to access? Following the NT’s 2017 consultation, the • Is any financial ombud scheme easily available schemes established a common phone number and accessible to complainants for submitting linked to an outsourced call center. Potential complaints and requesting information? complaints could call this number if they were unsure which of the ombud schemes they needed, • Does the financial ombud scheme make and the call center could transfer the call to one of appropriate provision for consumers who are the ombud schemes. more vulnerable or disadvantaged? • The schemes maintained their separate presences • In all these, is there consistency across the on the internet and continued to promote their financial ombud system? own phone numbers (in some cases, alongside the central number), so the common phone number has been little used. 11. ACCESSIBILITY | 103 • The ombud schemes themselves continue to refer The ombud schemes recognize the need to complaints to one another—and the jurisdictional increase their visibility and have increased their complexity that we described in chapter 8 means separate activities in this area—so far as their that the jurisdictional boundaries are difficult for limited resources permit. For example: an outsourced call center to understand and apply. • One of the schemes uses a public relations • The ombud schemes themselves acknowledge company. It uses national and local radio (in that the outsourced common phone number has various languages). It provides articles for not been a success. Some have withdrawn from free local-language newspapers. It uses advice the project, and others say that they are thinking agencies to distribute information and will run of doing so. workshops for those that request this. • International experience demonstrates that • Another of the schemes regularly contributes to initial receipt of a complaint is a crucial stage in TV and radio programs and has secured free media the ombud process, where effective triage can coverage that would have cost R 66 million to facilitate appropriate understanding, routing, and buy. Another has created a new communications handling of the complaint. team and secured free media coverage that would have cost more than R 30 million to buy. • This requires the initial stage to be handled by people who fully understand the scope, powers, • Another—in addition to using TV, radio, and the and approach of the relevant ombud scheme. press—leverages its limited budget by partnering with other agencies and participating in roadshows • So a properly functioning common point of and exhibitions. Its activities also include making entry is difficult to achieve until the complexity presentations to various courts throughout the and inconsistencies of the existing system have country and to pro bono offices in Gauteng, as been resolved. Until then, it merely adds an extra well as participating in the National Financial signposting stage. Education Committee. 11.3 VISIBILITY We asked the different ombud schemes about the information made available through financial Complainants cannot access the ombud system providers on the ombud schemes’ own websites if they do not know that it exists. The existing and through other means. Table 11A summarizes ombud schemes work separately from one another what the seven existing ombud schemes reported. It in undertaking a range of activities designed to raise can be seen that there are significant inconsistencies their visibility. These include the following: in relation to the following: • Publishing information on their websites • Whether financial providers are required to tell customers about the financial ombud at various • Publishing and distributing leaflets stages • Media activities (including press, radio, and social • The information on the ombud schemes’ websites media) about their powers and procedures • Promoting their annual reports • The information on the ombud schemes’ websites about who makes decisions • Consumer-awareness drives in shopping malls • How information is made available to consumers • Visits to community gatherings who do not have access to the internet • Participation in roadshows and exhibitions 104 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Table 11A. Visibility of the Existing Ombud System Yes No (No. Schemes) (No. Schemes) Are financial providers covered by your scheme required to tell customers in writing about it On the financial provider’s website? 4 3 At the point of sale? 3 4 In contracts? 6 1 If the customer makes a complaint? 6 1 In its final decision on a complaint? 7 0 Does the ombud scheme’s own website show If the complaint has to be made to the provider first? 7 0 The provider’s obligations in handling complaints? 1 6 If the scheme handles enquiries? 3 4 Which official languages the scheme can handle? 4 3 Which financial providers are covered? 7 0 Which customers are covered? 7 0 Which non-customers are covered? 2 5 Any time limits? 6 1 That the ombud scheme actively investigates case? 6 1 What redress an ombud can award? 3 4 If any court time limit is suspended? 4 3 What information is (or is not) confidential? 5 2 The name of any ombud? 5 2 The background of any ombud? 4 3 The way ombuds are appointed? 6 1 For those without internet access, does your scheme ensure that information is readily available from Consumer-advice organizations? 6 1 Local consumer-advice centers? 5 2 Public libraries? 6 1 Local government authorities? 3 4 Elected representatives? 1 6 Press, TV, and radio? 6 1 Social media? 5 2 11. ACCESSIBILITY | 105 11.4 ACCESSIBILITY • Even if they note down the complaint, three of the ombud schemes still require the complainant Free of Charge to sign the complaint by hand (one because it considers this is required by law). Apart from the JSE Ombud, all of the existing financial ombud schemes are free of charge to • Another of the ombud schemes requires written complaints. This means that cost is not a barrier for confirmation of the complaint but is prepared to complainants wishing to use these ombud schemes. accept confirmation by e-mail as an alternative to Under JSE rules, however, the JSE may require the a signature. parties to pay a deposit to cover a proportion of the costs of proceedings and the ombud may award • Three of the ombud schemes will accept online and costs against the losing party—so cost is a barrier. phone complaints without requiring a signature. In the case of phone complaints, it reads back the Making Contact details and asks the complainant to confirm them. Table 11B shows what the existing ombud • Complaints to the Banking Ombud can also be schemes reported about the various ways in submitted through bank branches. which complainants can contact them. This does not automatically mean that a formal complaint can • The PFA says it receives most of its complaints be submitted in all these ways. That is covered in the face to face, as complainants need help completing next section. the complaint form. It also says that, when it runs outreach meetings with staff who speak the local Submitting Complaints language, this produces a surge in complaints. All the schemes allow complaints to be submitted • For the other schemes, contacts are mainly online, in a variety of ways, but there are differences in via e-mail, and by phone—plus a limited number whether (or not) the complainant’s signature is of face-to-face contacts. required. • Since the pandemic, the Credit Ombud has been • All of the schemes will give complainants some actively promoting contact by SMS text, as it assistance in submitting a formal complaint—for believes many people have lost access to work example, noting down the complaint details from phones and e-mail. Someone from the Credit a phone call. Ombud will then phone the complainant to take down details of their complaint. Table 11B. Ways of Contacting Existing Ombud Schemes Banking Credit LTI STI JSE FAIS PFA Ombud Ombud Ombud Ombud Ombud Ombud Face to face?        Post?        Online?        Free-call phone?    Share-call phone?     SMS text  Social media     106 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Language • It some cases, it may also be necessary to consider the language abilities of dependents. An insurance The multiplicity of official languages in South or funeral policy might be taken out by a customer Africa presents challenges for all agencies who can speak English but, when they die, may that deal with the public, including the ombud be claimed by a dependent who cannot speak system. English is the principal language used in English. financial products, but, as table 11C shows, only 8.1 percent of the population speaks English at home All of the existing ombud schemes work primarily and only 16.6 percent speaks English outside home. in English. Their facilities for dealing with other This strongly suggests that there must be significant languages are variable. numbers of consumers who lack the fluency to pursue a complaint in English (or perhaps even to • All of the schemes say that the calls and understand the financial products sold to them). communications that they receive from complainants are overwhelmingly in English. Although English is the principal language That may reflect the fact that complaints are about used in financial products, it appears that they products that are in English, or it may reflect are promoted using a variety of languages. For apparent inaccessibility to those using other example: languages. • Our discussions with industry stakeholders • All of the ombud websites are in English—as suggested that in rural areas some products, are those of many other bodies, including some especially credit, are sold initially by local public authorities. Some have limited information introducers who use the local language to talk to available in other languages, if the user can potential customers before introducing them to a manage to navigate to it through the English credit provider that works primarily in English. pages. For example: • The WBG’s South Africa: Retail Banking - One includes its rules in all the official languages Diagnostic206 noted that banks vary in the and brochures in five languages. languages they use in marketing. One bank said it used marketing materials in all 11 languages. - One has its complaint guidelines in all official Another said it used nine languages. Still another languages. said it used the languages most predominantly spoken in that region. - One has a leaflet in isiZulu. Table 11C. Percentage of Population Who Speaks English Inside/Outside Home Speak English Speak English Population Group inside the Home outside the Home Black African 1.8% 8.6% Colored 20.1% 28.3% Indian/Asian 92.1% 95.8% White 36.3% 61.0% All South Africans 8.1% 16.6% Source: StatsSA census (www.statssa.gov.za/publications/P0318/P03182018.pdf) 11. ACCESSIBILITY | 107 • All but one will accept phone calls and other • Note the following: contacts in other languages, assuming they have a staff member who can speak that language. - The JSE Ombud does not appear, because it All but one will accept complaints in any of the received only one complaint during the year. official languages, but they all process complaints - The STI Ombud was unable to identify the in English. province for about one-third of the complaints it • Practice concerning written communications to received, so its overall numbers are understated. complainants varies. At one extreme, some schemes • Table 11D shows the number of complaints in will write only in English. At the other extreme, 2019 per one million of the current population, one scheme (where the complaint was received for the whole of the ombud system and each of in another language) will write in English but the ombud schemes. Table 11E shows which automatically include or offer a translation as well. provinces produced notably fewer (or notably more) complaints than the others per one million Vulnerable/Disadvantaged/Disabled of population. Complainants Complainants may also be vulnerable/ • Though the tables are based on a single year, and disadvantaged (for example, because of poor there may well be fluctuations from year to year, literacy or poor rural communications) or be there are some striking variations among provinces. disabled. For example, across the whole ombud system, Gauteng produced almost four times as many • One scheme said it had not thought about these complaints per one million inhabitants as Limpopo. issues, and so it had not developed any processes or policies to deal with it. • These variations may arise because the following: • One scheme said that it has processes to deal with - The ombud schemes are more visible and vulnerable/disadvantaged complainants but not accessible in some provinces. disabled complainants. - Financial services, or particular financial • The other schemes said that they had processes products, are more widely used in some to assist vulnerable/disadvantaged and disabled provinces. complainants, but none of them had prepared - More people are comfortable transacting in documented processes and policies about this. English in some provinces. • One said that it was about to launch an update - A combination of all three. of its electronic case-management system that would enable it to identify and classify vulnerable The figures, however, would merit further complainants and document their needs. investigation by the Ombud Council, as they may indicate that the ombud system is proportionately less 11.5 REGIONAL DIFFERENCES accessible from some provinces and proportionately more accessible from others. Tables 11D and 11E illustrate the distribution of complaints received by the ombud system (and 11.6 STAKEHOLDER VIEWS each scheme) compared to the distribution of the population in South Africa. Stakeholders acknowledged the importance of the ombud system being visible and accessible • Both tables compare the number of complaints while accepting that the multiplicity of schemes received (where the province was identified)207 to created issues. the population of each province and the whole of South Africa.208 108 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Table 11D. Complaint Distribution Compared to Population Distribution (1 of 2) Number of Complaints per 1 Million Population Mid-year 2020 population estimates http://www.statssa.gov.za/?page%20id=1854&PPN=P0302 compared to 2019 case data from the ombud schemes EASTERN CAPE FREE STATE GAUTENG KWAZULU-NATAL LIMPOPO MPUMALANGA NORTH WEST NORTHERN CAPE WESTERN CAPE SOUTH AFRICA 0 200 400 600 800 1000 1200 1400 1600 Ombud System Banking Ombud Credit Ombud FAIS Ombud LTI Ombud STI Ombud PFA 11. ACCESSIBILITY | 109 Table 11E. Complaint Distribution Compared to Population Distribution (2 of 2) Complaints per one million population: Northern Cape KwaZulu-Natal Western Cape  More than 125% of average Eastern Cape Mpumalanga North West Free State may indicate proportionately more accessible Limpopo Gauteng = 125% to 75% of average  Less than 75% of average may indicate proportionately less accessible Banking Ombud  =       = Credit Ombud = =        LTI Ombud =  = =      STI Ombud  =  =    = = FAIS Ombud  =      = = PFA     = = =   Whole ombud system  =       = • Some industry stakeholders (especially in the outreach resources available to the individual insurance sector) thought the system was already ombud schemes do not appear to be operated sufficiently accessible. collectively. So the visibility and accessibility of the ombud system are less than they would be if • Other industry stakeholders (especially in the the resources were combined and operated behind a credit sector) and consumer stakeholders thought common brand. A single point of entry would help, there was much that remained to be done in order to but only once the complexity and inconsistencies of reach many consumers, especially disadvantaged the existing system have been resolved. ones. Visibility • Many accepted the need to improve the financial education of consumers but recognized that the There is significant inconsistency, and some ombud schemes do not have the resources to do deficiencies, in whether and when financial so—though they cooperate with the financial- providers are required to tell customers about education activities of public agencies. the ombud system, the information available on scheme websites, and the provision of information • Quite a few stakeholders advocated working with to those without internet access. Coordination and local agencies (both advice centers and others) standardization could improve things substantially, and the use of local-language radio. especially in getting information to those without internet access. 11.7 CONCLUSIONS Accessibility Fragmentation All of the ombud schemes (apart from the JSE The ombud schemes have increased their Ombud) are free to consumers. But there are efforts to promote awareness, but there is no significant differences, and some deficiencies, in common brand to promote, and the limited the ways in which complaints can be submitted to 110 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC the different schemes, and in whether a signature or • There are striking differences in the numbers of written confirmation is required. All of the existing complaints received from different provinces, schemes can be contacted online, by phone, by and the multiplicity of official languages presents post, or face to face, but these is no consistency in challenges for all agencies that deal with the whether phone calls are partially chargeable or in public, including the ombud system. the use of SMS text and social media. • All of the ombud schemes (apart from the JSE The multiplicity of official languages presents Ombud) are free to consumers. But there are challenges for all agencies that deal with the significant differences in how complaints can public, including the ombud system. Although be submitted, and about whether a signature or English is the principal language used in financial written confirmation is required. products, it appears that they are promoted using a variety of languages. All of the existing ombud • A single point of entry would help, but only once schemes work primarily in English. Their facilities the complexity and inconsistencies of the existing for dealing with other languages are variable. system have been resolved. The amount of help available to vulnerable/ Areas for potential improvement include disadvantaged/disabled complainants is variable ensuring the following: (and, in some instances, lacking). Most but not all • That sufficient personnel and financial resources schemes make some provision for them, but there are allocated, in order to improve the visibility is a lack of the documented policies and procedures and accessibility of the ombud system usually required to train staff appropriately. • That those resources are combined behind a Regional Differences common brand, strategy, and policies, in order to Even after adjusting for population differences, deliver information effectively to all who need it there are striking differences in the numbers of (directly or through partner organizations) complaints received from different provinces. • That one or more combined points of entry replace These may arise because the ombud schemes are all the separate ones, but only once the complexity more visible and accessible in some provinces; and inconsistencies of the existing system have financial services, or particular financial products, been resolved are more widely used in some provinces; more people are comfortable transacting in English in • That it is made as simple and informal as possible some provinces; or a combination of all three. The for consumers to submit a complaint to the ombud issue deserves further study, given that it could system by any reasonable channel and without potentially indicate deficiencies or concerns needing requiring a formal signature to be addressed at the regional level. • That common approaches are developed (and staff Accessibility Overall trained) to assist consumers facing difficulties The visibility and accessibility of the ombud because of language, vulnerability, disadvantage, system are less than they would be if there were or disability combined resources using a standard approach. • That the disproportionate inflow of complaints • Coordination could improve things substantially, from different provinces is investigated and any especially in getting information to those without appropriate action taken internet access. The amount of help available to • That the ombud system is not expected to carry complainants who are vulnerable, disadvantaged, the responsibility of providing general financial or disabled is variable—as is the degree of education for consumers, but continues to outreach to more rural areas. cooperate with the financial-education activities of public agencies 11. ACCESSIBILITY | 111 12 FAIRNESS This chapter considers the extent to which the financial ombud system has a process providing outcomes that are visibly fair, equitable, and consistent. 12.1 CRITERIA be free to consumers and intended to resolve disputes fairly, informally, and flexibly with no legal In this chapter, we consider the extent to which representation.209 the ombud schemes have an informal, easy-to- The financial ombud schemes in South Africa understand, and flexible process with outcomes apply the principles of resolving complaints that are both fair and seen to be fair. by informal, fair, and cost-effective complaint- • We consider the extent to which the ombud handling procedures, though the JSE Ombud schemes’ rules and processes apply is not necessarily free to the complainant. These principles are set out in the statutory requirements - Principles of procedural fairness in handling for recognition of ombud schemes, the governance complaints; and documents and rules (or terms of references) of the industry ombud schemes, and in the legislative basis - Fairness and equitable principles in achieving for the statutory ombud schemes. their complaint-resolution outcomes. • The current industry schemes are recognized under • We also look at the current review and appeal the FSOS Act. Section 11(e) of that act requires processes from ombud decisions and what role that the procedures of a recognized scheme must they should play. enable the ombud, among other things, to do the • In all of these, we consider consistency across the following: financial ombud system. - Resolve a complaint through mediation, Complaint handling by ombud schemes needs to conciliation, recommendation, or determination be visibly fair and efficient. We have reviewed the - Act independently in resolving a complaint or information that was provided to us or is publicly in making a determination available, but we have not undertaken a detailed operational audit of the processes of each ombud - Follow informal, fair, and cost-effective scheme, involving review of a sample of closed procedures cases. That is beyond the scope of the current diagnostic. - Where appropriate, apply principles of equity in resolving a complaint 12.2 INFORMAL, EASY-TO- • In addition, section 11(g) of the FSOS Act UNDERSTAND, AND FLEXIBLE requires that the ombud schemes treat the PROCESS questions, concerns, and complaints of consumers equitably and consistently in a timely, efficient, The purpose of a financial ombud scheme is to and courteous manner. provide independent, impartial, and fair out- of-court redress through ADR. In contrast to the courts, the processes of an ombud scheme should 12. FAIRNESS | 113 • The legislative mandates of the FAIS Ombud While the broad principles that apply to the and PFA set out that they are to be procedurally ombud schemes are similar, there are many fair, economical, and expeditious in resolving differences in the actual complaint-handling complaints in their respective jurisdictions.210 processes among the ombud schemes. An overview of the complaint-handling processes of • All the ombud scheme rules and procedures the different ombud schemes is set out in appendix enable the parties to resolve complaints without F. Differences include the following: legal representation, although complainants can get assistance from other people who are not • Different requirements on the ways in which a legally qualified. Where a party requests legal complaint can be submitted214 representation, such as in a hearing or mediation, in many of the schemes the ombud has to approve.211 • Varying approaches to formal transfer or referral The PF Act does not permit legal representation arrangements to financial providers for premature of the parties.212 complaints215 • All the ombud schemes’ rules and complaint- • Whether a scheme has a process for the handling processes seek to assist resolution as prioritization or triage of complaints a first step in their process via agreed outcomes • The approach to dismissing a complaint assessed such as mediation, conciliation, or settlement, as having no reasonable prospects of success or as where possible and appropriate. The rules of some clearly lacking any merit ombud schemes explicitly require the ombud initially to seek to resolves matters via an agreed • The extent to which a scheme resolves matters by outcome.213 facilitating a settlement or other agreed outcome • All ombud schemes make it clear to complainants • The approach to making findings of fact where the in their communications that they will try to facts are disputed resolve the complaint with the financial provider by agreement as a first step. • The use of nonbinding recommendations and provisional determinations • Where they are unable to facilitate an agreed outcome, each ombud scheme’s rules and • The numbers of, effect of, and approach to ombud procedures provide for a further review, leading determinations or rulings to an assessment of the merits in the form of a • The level of informal engagement with the nonbinding recommendation or a provisional parties throughout the process, including once an determination. investigation has begun • In order for a matter to be closed at this stage, • The terminology used for the stages in the process normally both parties must agree to the outcome and the grades of staff involved in them proposed. Where this is not the case, each ombud scheme’s rules and procedures provide that the • The time frames required for responses from the ombud can determine the complaint on the merits parties at each stage of the process in a ruling or determination. • The information provided to the parties when a complaint is closed 114 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC At the very least, these differences complicate While the rules and procedures of all the ombud matters for providers that deal with more than one schemes provide for a fair complaint-handling ombud scheme and for complainants whose case process, there are key differences in approach (because of overlapping jurisdictions) is handled by among the existing schemes. For example: more than one ombud scheme. • The ombud schemes’ rules are not consistent in how they treat confidential information. 12.3 PROCEDURAL FAIRNESS - Some scheme rules provide that they can keep As ADR bodies, the ombud schemes should have information from one party confidential and not processes for complaint handling and decision- share it with the other party to the complaint. making that are consistent with the principles But the approach to how the ombud scheme of procedural fairness. This is important to can use this confidential information in making support trust and confidence in the ombud scheme’s decisions varies. decisions by all parties to a complaint and by the broader community. - Sometimes the rules clarify that the ombud cannot use confidential information to make • The legislation for the FAIS Ombud and PFA an adverse finding against a party to whom it include in their mandates the requirement denies the confidential information. In other for resolving complaints in a way that is ombud schemes, while this may be the practice, procedurally fair. the rules do not explicitly address the treatment • Section 11 of the FSOS Act containing criteria of confidential information. to recognize an ombud scheme requires the • There are different approaches to how far the scheme to follow informal, fair, and cost- parties can use information from the ombud effective procedures. schemes in subsequent legal proceedings. • The industry ombud schemes incorporate the - For the industry ombuds, their rules clarify that requirements for a fair process in their complaint the parties cannot use information provided rules and procedures. through the ombud process in subsequent legal The ombud schemes’ complaint-handling proceedings and is confidential, except for processes should apply accepted elements of several exceptions set out in their rules. acting fairly in resolving complaints.216 The - Some of these exceptions are for the publishing following are key elements for the parties to the of a final determination or ruling, or where there complaint: has been non-compliance with a decision that • To have a reasonable opportunity to present their the ombud then decides to make public. side of the complaint - In one ombud scheme, all aspects of the ombud’s • To be informed of the critical issues they must decision-making, information about the complaint, address and identity of the parties is confidential under the rules unless agreed to by the relevant entity and both • To have access to all relevant information on the parties to the dispute.217 critical issues in the complaint - The approach of the statutory ombud schemes - In reaching a fair agreed outcome, or to confidential information is set out in the legislation. Under the PF Act, the adjudicator - Needed by a decision-maker in making their must keep a permanent record of proceedings recommendation or decision on the merits. and evidence relating to the adjudication of a complaint. Any member of the public can get a copy.218 12. FAIRNESS | 115 - The FAIS Ombud’s rules say that information 12.4 BASIS OF DECISION provided to the ombud is confidential and that the ombud may disclose it to the registrar or to International good practice is for an ombud to another party to the complaint only to the extent decide the merits of a case based on what is fair necessary to resolve the complaint, or where and reasonable (equitable), taking into account required under the act or any other law.219 the law, financial regulations, any industry codes, and industry good practice. This means that the • The extent to which the ombud schemes make use ombud can deliver a fair outcome to the parties in of a provisional determination or ruling before a all the circumstances of the particular complaint.220 final binding decision differs. • Under the FSOS Act, recognition of an ombud - While all the ombud schemes’ rules and scheme by the Ombud Council requires that the procedures provide for the making of nonbinding procedures of the scheme must enable the ombud, recommendations or provisional determinations where appropriate, to apply the principles of equity or rulings, the schemes have adopted different in resolving a complaint. A similar provision is practices. Some schemes provide a provisional contained in the criteria for approval of an ombud decision in nearly all cases, giving the parties an scheme by the Ombud Council in chapter 14 of opportunity to comment before a final decision the FSR Act—section 196(3)(e)(vii) requires the is issued. Other schemes usually go straight ombud to apply, where appropriate, principles of to a final decision, which may increase the equity when dealing with a complaint. possibility of an appeal in more complex cases. • The ombud schemes can take into account what - One ombud scheme provides its draft findings is fair or equitable in the circumstances of the and recommendation first to the financial particular complaint, but the terminology in the provider, to test whether it might have law or rules differs across the ombud schemes. persuasive reasons to the contrary. Only then Table 12A sets out the decision-making criteria is the complainant given the settlement offer for each ombud scheme, as set out in relevant or recommendation. Other ombud schemes legislation, governing documents, or rules provide to both parties at the same time, which (emboldening added). arguably appears more evenhanded. Table 12A. Decision-Making Criteria of Each Existing Ombud Scheme Banking Ombud Rules: Criteria used to resolve disputes include 1. The law, especially [FSOS Act] and [NC Act]; 2. Applicable industry codes or guidelines; 3. Good banking practice; 4. Banking practice in other jurisdictions; and 5. Fairness in all the circumstances. The Ombudsman personally may in a case where a recommendation has not been accepted by all parties concerned, make a binding written determination based on the law or the [Banking] Code… 116 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Credit Ombud Constitution, Mission Statement, and Value Statement: In resolving disputes, the [Credit Ombud] shall have regard to the law, fairness, justice, equity and fundamental human rights and values as prescribed by the principles of “UBUNTU.” The [Credit Ombud] must balance the rights of consumers on the one hand and the rights of the members on the other hand. 30 CRITERIA USED TO RESOLVES DISPUTES 30.1 The law more particularly but not limited to [FSOS Act], the [NC Act] and the [CP Act]. 30.2 Applicable industry codes and relevant codes of conduct and/or guidelines. 30.3 Fairness in all the circumstances In the event of legislation being enacted in the future impacting the credit industry, the criteria referred to may be extended by the Council of the CO. Terms of Reference: RULE 6: CRITERIA USED TO RESOLVE DISPUTES [Same as above] RULE 12: The Credit Ombud shall apply the applicable legislation, regulation, Code of Conduct or guidelines, and/or the principles of fairness and equity in resolving a dispute. LTI Ombud Constitution: Mission 1.2 The Ombudsman shall seek to ensure that: 1.2. 1 … 1.2.2 … 1.2.3 he or she keeps in balance the scale between complainants and subscribing members; 1.2.4 he or she accords due weight to considerations of equity. STI Ombud Terms of Reference: 1. PREAMBLE 1.1 …. 1.2 The Ombudsman acts independently and objectively in resolving disputes and is not under instructions from anybody when exercising his or her authority. The Ombudsman resolves disputes using the criteria of law, equity and fairness. These Terms of Reference define the powers and duties of the Ombudsman. 2.4 “Ruling” means, with respect to a complaint, a written directive issued by the Ombudsman which is binding on the Insurer and which is based either in law or equity. RULINGS 7.1 When all the material facts are agreed or the facts have been established to the Ombudsman’s satisfaction on a balance of probabilities, the Ombudsman may make a Ruling. 7.2 Rulings shall be based on the law and equity. JSE Ombud JSE Rules: There is no specific reference to equity in the criteria for decision-making, but the JSE says this is implied by the requirement to appoint a former judge or a senior council as the ombud. 12. FAIRNESS | 117 FAIS Ombud Section 20(3) of the FAIS Act: The objective of the Ombud is to consider and dispose of complaints in a procedurally fair, informal, economical and expeditious manner and by reference to what is equitable in all the circumstances, with due regard to— (a) the contractual arrangement or other legal relationship between the complainant and any other party to the complaint; and (b) the provisions of this Act. PFA Section 30D(2) of the PF Act as amended by the FSR Act: In disposing of complaints in terms of subsection (1) the Adjudicator must- (a) apply, where appropriate, principles of equity; (b) have regard to the contractual arrangement or other legal relationship between the complainant and any financial institution; (c) have regard to the provisions of this Act; and (d) act in a procedurally fair, economical and expeditious manner. Before the FSR Act changes came into force on 1 April 2019, the Adjudicator was required to reach a just and expeditious resolution of complaints in accordance with the law. • The ombud schemes incorporate their approach - The profile of complaints across different to applying fairness and equity in their training sectors and products and/or the specific features materials, process guides, procedures for and complexity of complaints particular types of complaints, and as part of their internal review processes. - The effectiveness of internal complaint handling by financial providers, including any escalation • The annual reports and other publications processes to an internal adjudicator highlight examples of an ombud scheme’s approach to fairness and equity. These include - Whether the level of engagement between the case studies where equity considerations apply industry and the ombud results in providers and commentary on the ombud’s general approach resolving by themselves cases that they believe or decisions based on the application of its equity the ombud will uphold jurisdiction. • The role of the ombud is to decide complaints fairly and impartially between the parties based 12.5 COMPLAINT OUTCOMES on their merits and not to achieve targets for any particular outcome. To do so would contravene There are material differences between schemes the independent, impartial role of an ombud. in the proportion of cases where the complainant obtains a better outcome than what was offered • But trends in uphold rates over time in particular by the financial provider before the complaint sectors, or significant variations among similar was referred to the ombud scheme—though products and services, can be a useful indicator of there are many factors involved. a need for further review. • Variations in the proportion of complaint-upheld • Information on complaint-uphold rates can also rates can reflect a wide variety of factors, including help inform a quality-assurance program and be differences in the following: used as part of a periodic independent review (discussed in chapter 12). 118 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Table 12B. Complainant Achieved a Better Outcome Than That Offered by Financial Provider, 2018–19 Banking Credit LTI STI JSE FAIS PFA Ombud Ombud Ombud Ombud Ombud Ombud 22.9% 221 Not Not 57.5% 34.12%222 20.00% 58.89%224 applicable available223 Sources: Credit Ombud, annual report. Remainder: data provided in response to WBG questionnaire. Table 12B shows the proportions reported by the • By a reconsideration mechanism, we mean that different schemes apart from the FAIS Ombud there is a body that (which does not report the number/proportion of complaints in which the complainant secured a better - Can consider both the way the case was handled outcome than that offered by the financial provider) by the ombud and the merits of the case; and and the JSE Ombud (which had only one case). - (If it disagrees with the ombud) can only send the case back for the ombud to consider again. 12.6 APPEAL MECHANISMS • By an appeal mechanism, we mean that there is a The term appeal is commonly used to cover body that any mechanism to challenge the decision of an ombud, although (strictly speaking) some - Can consider both the way the case was handled of these mechanisms comprise a review or a by the ombud and the merits of the case; and reconsideration, rather than an appeal. - (If it disagrees with the omdud) can substitute • By a review mechanism, we mean that there is a its own decision on the merits. body that There are variations in the availability of - Can consider only the way the case was handled mechanisms to challenge the decision of an by the ombud; and ombud, the grounds on which the decision can be challenged, and the powers of the appeal/ - (If it disagrees with the ombud) can only send review body. the case back for the ombud to consider again. • All of the ombud schemes (and also the Financial Services Tribunal) are potentially subject to judicial review by the High Court. Table 12C. Comparison of Review, Reconsideration, and Appeal Mechanisms What It Can Consider If It Disagrees with Ombud Process Merits Back to Ombud Can Substitute to Decide Again Its Own Decision Review Yes No Yes No Reconsideration Yes Yes Yes No Appeal Yes Yes No Yes 12. FAIRNESS | 119 - Either the financial provider or the complainant • In the case of the Banking Ombud, LTI Ombud, could apply for judicial review, but such cases and STI Ombud: appear to be rare or nonexistent. - The financial provider is bound by the ombud’s - The High Court would not consider the merits of decision but can appeal to an internal appeal the case. It would consider whether the ombud panel established under the rules of the particular failed to follow a fair process or misunderstood ombud scheme. its own jurisdiction or the law. - The complainant can also appeal but is not - If the High Court upheld an application for bound by the ombud’s decision and retains judicial review, it would require the ombud to any rights to pursue the complaint against the decide the case afresh. The High Court would financial provider in the courts. not make its own decision on the case. - The appeal panel can consider both process • In the case of the Credit Ombud and the JSE and nerits. If it disagrees with the ombud, it can Ombud: substitute its own decision. - The financial provider is bound by the ombud’s Either party to a complaint to the FAIS Ombud decision, and there is no mechanism (other or the PFA has a statutory right to apply to the than judicial review) to challenge the ombud’s Financial Services Tribunal for reconsideration decision at present.225 of an ombud decision. - The complainant is not bound by the ombud’s • The Financial Services Tribunal was established decision and retains any rights to pursue the under section 219 of the FSR Act, with effect from complaint against the financial provider in the April 1, 2018. It covers decisions by a number of courts. other bodies as well as the FAIS Ombud and PFA. On application by any aggrieved party, the tribunal - In the case of the Credit Ombud, consumers will reconsider any decision made by either of the can also take their complaint to the NCR and statutory ombuds.227 The tribunal can order that a potentially the National Consumer Tribunal.226 decision be set aside and send the matter back to • In the case of the FAIS Ombud and the PFA: the ombud for reconsideration.228 It cannot make a fresh decision on the merits. - The financial provider is bound by the ombud’s decision but can apply for it to be reconsidered • Under section 28(5) of the FAIS Act and the FAIS by an external body—the Financial Services Ombud’s Rule 12, a party wishing to apply for Tribunal. reconsideration of a determination by the FAIS Ombud must provide written reasons within one - The complainant is also bound by the ombud’s month of the ombud’s decision. The ombud will decision and can also apply for it to be then consider whether to grant permission, taking reconsidered by the Financial Services Tribunal. into account the complexity of the matter and the likelihood of the tribunal reaching a different - The Financial Services Tribunal can consider conclusion. If the ombud refuses permission, the both process and merits. If it disagrees with the applicant can apply to the tribunal for permission. ombud, it can only send the case back to the ombud to be decided afresh. • Under the FSR Act, the parties may appeal a decision by the PFA to the tribunal. Neither the PF Act nor the rules of the PFA provide any requirement that an applicant has to seek permission from the PFA before applying to the tribunal. Under section 30P of the PF Act, any 120 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC party who feels aggrieved by a determination of - Thirty-one applications were made by the PFA may, within six weeks after the date of complainants. Five were successful. Twenty-six the determination, apply to the High Court, which were rejected. may consider the merits of the complaint made to the PFA and make any order it deems fit. The rules of the Banking Ombud,229 LTI Ombud, and STI Ombud all make provisions for any • In 2020, the tribunal published 207 decisions, party to request an appeal against an ombud of which only one-third related to the ombud decision to an appeal panel.230 schemes. Three decisions related to the FAIS Ombud (less than 2 percent of tribunal cases), • The board/council of the scheme231 appoints an and 64 related to the PFA (31 percent of tribunal appeal body, which comprises a retired High Court cases). judge sitting either alone or as chair of a panel. The appeal body can consider both procedural issues • Of the three cases relating to the FAIS Ombud: and the merits. The appeal body can substitute its own decision on the issues in a complaint. - Two applications were made by financial providers. Both were successful. • The common grounds for granting permission to appeal include - One application was made by a complainant. It was rejected. - There are reasonable prospects that the appeal body will reach a different conclusion; and • Of the 64 cases relating to the PFA: - The matter is one of complexity or difficulty; or - Thirty-three applications were made by financial providers. Eighteen were successful. Fifteen - The matter is of public or policy interest.232 were rejected. Table 12D. Bindingness/Review/Reconsideration/Appeal Ombud decision Ombud decision Internal appeal External Judicial review binding on binding on panel reconsideration by High Court financial complainant? by tribunal provider? Can consider Can consider merits or Can consider process process merits or process Can send case Can substitute back to ombud its own decision Can send case to decide afresh back to ombud to decide afresh Banking Ombud Yes* No Yes No Yes Credit Ombud Yes* No No No234 Yes LTI Ombud Yes No Yes No Yes STI Ombud Yes No Yes No Yes JSE Ombud Yes No No No Yes FAIS Ombud Yes Yes No Yes Yes PFA Yes Yes No Yes Yes * If the decision is accepted by the complainant 12. FAIRNESS | 121 • There are also several differences between the • There are no independent review mechanisms to appeal rules of the three schemes, including the test ombud schemes’ processes and determinations following: for independence, adherence to legislation, or fairness (to either the client or financial provider). - Whether the ombud or the appeal body makes the initial decision on whether to grant • Clear guidelines or standards should govern permission to appeal the use of the principles of equity and the fair treatment of customers when the ombud considers - If the initial decision is by the ombud, whether awards on damages for distress. this is subject to further review by the appeal body • The ombud schemes should apply equitable principles consistently in deciding cases. The - A minimum monetary threshold for an appeal interpretations and decisions are not always to be granted consistent between the ombud schemes. - Whether the appeal body can hear fresh evidence • Some ombud schemes have not correctly applied or allow the parties to be represented the principles of equity, whereas others have done - Whether the complainant has to agree to be so. bound by any decision of the appeal body or • Some ombud schemes publish final determinations remains free to seek redress in the courts (which the stakeholders characterized as “name • There have been no appeals against decisions of and shame”). This has resulted in some financial the Banking Ombud233 or the STI Ombud since providers being unwilling to challenge the those schemes introduced the appeal provisions ombud’s provisional determinations for fear of into their rules. reputational harm. They consider this unfair. • In 2018, there were 33 applications for permission • Fairness and equity should entail equity not to appeal decisions by the LTI Ombud, one of only to the complainant but also to the relevant which was granted. The appeal body dismissed financial institution—that is, both parties to the the appeal. In 2019, 14 complainants applied for dispute. Ombud schemes seem to lose sight of this permission to appeal. The ombud granted none, on and consider equity only from the complainant’s the basis they did not have reasonable prospects of perspective. success. • The appeal process to the Financial Services Tribunal was run similar to a court process and 12.7 STAKEHOLDER VIEWS was not consumer friendly—leaving consumers at the mercy of technical arguments from lawyers Although there were positive comments from that the consumers were unable to counter. stakeholders that the ombuds’ processes generally supported fair and balanced decision-making, • Levels of engagement of the ombud schemes several industry respondents also highlighted vary, including the extent to which they inform the specific concerns. These stakeholders commented industry about trends and issues to help prevent on the following issues: future complaints. • Clear guidelines or standards are needed to govern • The information provided by the different ombud the use of the principles of equity and the fair schemes when a complaint is closed varies. treatment of both parties to a dispute. Several financial providers felt that some schemes gave them little information on the basis a closed case had been resolved. 122 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 12.8 CONCLUSIONS • Subject to defined circumstances or specific categories of complaints, the general international Fair Process practice of most ombud schemes is to issue a provisional decision or recommendation, so the The existing legislative framework, governance, parties can comment before the ombud makes a and rules of the ombud schemes and their final binding decision on more complex matters. complaint-handling processes are generally consistent with good practices designed to ensure • If the parties get a last opportunity to comment fair and equitable resolution of complaints. before an ombud makes a final decision, this should assist the ombud to identify and address all • For most of the ombud schemes, an equitable issues in contention and may reduce the number jurisdiction has been a long-standing part of their of those who wish to appeal. approach to dispute resolution and decision- making. • The general experience internationally is that ombud schemes are able to facilitate an agreed • Originally, under the PF Act, the PFA did not have settlement in a majority of cases. But that ability is an explicit power to apply the principles of equity. underpinned by the parties knowing that the ombud But the amendments to the PF Act by the FSR has power to make a decision if agreement is not Act provide that, in disposing of complaints, the reached. In South Africa, some ombud schemes adjudicator must now apply principles of equity go on to make a significant number of formal where appropriate.235 decisions; others rarely do so. Ombud decisions • The JSE Ombud differs from the other ombud play an important role in the following areas: schemes in most aspects and is more akin to a - Avoiding any perceptions that the ombud is private arbitration arrangement established for a negotiating an outcome with the financial specific dispute if the need arises. provider at the later stages of a complaint that the All ombud schemes provide for a fair complaint- financial provider had sufficient opportunities to handling process in their rules and processes, resolve earlier but there are differences in approach. - Avoiding any perceptions that the financial Consistently applied and fair procedures are provider is agreeing to a provisional decision important for maintaining the trust and confidence only under pressure, despite disagreeing of all stakeholders in the ombud system. It is also with it, to avoid what it might perceive as the important in supporting sound decision-making. reputational impact of a public determination • It is important that all ombud schemes have - Where a clear written decision would provide processes that are fair and are seen to be fair— clarity on the ombud’s approach to significant both by the parties to a complaint and by the or new and emerging issues broader community. - Where financial providers and their customers • The FAIS Ombud and the PFA, as statutory bodies, would welcome clarification about what the are subject to the procedural fairness provisions in law, regulatory standards, relevant codes, or the Promotion of Administrative Justice Act 3 of industry good practice require in specific types 2000 (PAJ Act).236 of complaints • Though some ombud schemes routinely issue - Helping to provide greater transparency to a provisional decision before making a final the community about the approach the ombud binding decision, others seldom do so. Industry is taking in applying equitable principles in stakeholders said that they felt a provisional deciding cases decision was an important aspect of a fair process. 12. FAIRNESS | 123 • The complaint-uphold rates vary among the • Consistent with international good practice, any ombud schemes. While variations in uphold rates test should be based on the role of an ombud can be caused by a wide range of factors, changes scheme in achieving a fair and reasonable outcome over time and differences between sectors can be in the circumstances of the particular complaint, a useful indicator of a need for further inquiry into taking into account the law, regulatory standards, any underlying causes. relevant codes, and industry good practice. Each ombud scheme has differing rules, Appeal Mechanisms terminology, and complaint-handling procedures There are different appeal/review mechanisms, designed to achieve the common aim of fair with differing powers, in the current ombud processes and complaint outcomes. The lack of system. consistency results in an ombud system that is • Applications for reconsideration of decisions - Confusing for complainants when they have to by the two statutory ombud schemes (the FAIS deal with several ombud schemes for different Ombud and PFA) can be made to the Financial aspects of the one complaint; Services Tribunal. The tribunal can either dismiss - Complex and costly for financial providers that the application or set aside the decision and send deal regularly with multiple ombud schemes it back to the ombud for reconsideration, but the and their different ways of working; tribunal cannot substitute its own decision. - Potentially inconsistent in how it applies due • Three of the industry ombud schemes (the process and equitable principles to the resolution Banking Ombud, LTI Ombud, and STI Ombud) of complaints; and have their own separate appeal bodies. The appeal body can consider both procedural issues and the - Less effective in promoting common standards merits. The appeal body can substitute its own of fair dealing between financial providers and decision on the issues in a complaint. their customers. • Two of the industry ombud schemes (the Basis of Decision Credit and JSE Ombuds) do not have an appeal With the exception of the JSE Ombud, the mechanism. In the case of credit disputes, the legislation and rules of the ombud schemes NCR and National Consumer Tribunal appear to identify the principles of equity as key criteria in provide avenues for review of decisions. resolving disputes, but the wording of the rules • Industry stakeholders felt that an appeal process differs. While these differences in wording may not is important, and there was some support for the have a significant practical impact on the dispute Financial Services Tribunal, or something similar, process and decision-making, there would be to apply across the ombud system. advantages in having a clearer, common articulation across the ombud system. Achieving finality in decisions, as far as practicable, is central to the role of an ombud as • This could help support a better understanding of an informal, efficient, cost-effective, and timely the role of fairness and equity as the underpinnings alternative to the courts. of the ombud schemes’ approach to resolving disputes. • To ensure an effective ADR mechanism, the parties to a dispute should not treat the ombud • It could also help support a consistent approach system as just one stepping-stone in a protracted across the ombud system. If ombud decisions legal process. Appeals should not form a routine were reviewed by the courts or the tribunal, there part of the process. would have a common standard against which to do so. 124 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Internationally, appeal bodies in relation to ombud Fairness Overall decisions are the exception, rather than the rule. The existing rules and processes are generally - As financial ombuds are themselves specialist consistent with international good practices dispute-resolution bodies, majority international designed to ensure the fair and equitable practice is not to subject ombuds to the sorts of resolution of complaints. administrative review that apply to government • The ombud schemes provide for a fair complaint- departments and public agencies. handling process in their rules, which also spell - In those jurisdictions where the courts do play out fairness and equity as the basis of their a role in relation to ombud decisions, it takes decision-making.238 the form of a judicial review of the ombud’s • But there are significant differences in rules, decision-making process, rather than an appeal terminology, complaint-handling processes, and against the merits of the ombud’s decision. appeal procedures among the ombud schemes. - To cater for special cases involving matters of • This lack of consistency results in an ombud general industry/consumer impact or significant system that is legal issues, some ombud schemes provide for test cases to be taken to court in limited - Confusing for complainants; circumstances and with the financial provider having to pay the costs of both sides.237 - Complex and costly for financial providers; • Nevertheless, an appeal mechanism appears to - Potentially inconsistent in how it applies due be an accepted feature of the current system in process and equitable principles; and South Africa (though use is variable), but it would - Less effective in promoting common standards be clearer, more effective, and provide more of fair dealing. consistent outcomes if Areas for potential improvement include the - The ombud system had a single, dedicated following: appeal mechanism of its own; • The ombud system should have a consistent set - This had an informal process (so as not to of rules and criteria for resolving complaints in disadvantage consumers); a manner that is fair in all the circumstances, - It had specialist knowledge of the work of taking into account the law, regulatory standards, financial ombuds, as well as financial services industry codes, and industry good practice. and credit; • The ombud system should have consistent - Access was limited to cases with general or processes and procedures to apply the principles systemic implications; and of fairness in resolving complaints through ADR, including the following: - It had discretion, where it thought appropriate, to reach its own decision on the merits. - Making the process easy to use and efficient for consumers and financial providers239 - Exchange of information and documents - Use of confidential information 12. FAIRNESS | 125 - Approach to dismissal of complaints based on • The ombud system should have a single, dedicated no merit or no reasonable prospects of success appeal mechanism of its own, with an informal procedure and specialist knowledge of the work - Use of provisional decisions before a final of financial ombuds as well as of financial services binding decision on more complex matters and credit. - Ombuds regularly making final decisions on - This should have an informal procedure (so as cases and publishing them (with the complainant not to disadvantage consumers). anonymized) - It should have specialist knowledge of the work • Where relevant facts of a case are disputed, the of financial ombuds as well as of financial ombud system should decide (in the light of the services and credit. available evidence) what is most likely to have happened, without imposing an onus of proof on - Access should be limited to cases that raise the complainant. issues with general or systemic implications. • Details of complaint-uphold rates should be - The appeal body should have discretion, where published, and this information should help to it considers this is in the interest of both parties, inform a quality-assurance program and periodic to reach its own decision on the merits. independent reviews. 126 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 13 EFFICIENCY This chapter considers whether the financial ombud system has processes that provide a consistently good quality of service and value for money. 13.1 CRITERIA processes to use in processing and resolving complaints; In this chapter, we assess the efficiency of • Have their own individual forms for complainants, the ombud system, and how it shows that and guidance outlining their procedures to assist it provides a quality service and value for complainants to understand what to expect when money to stakeholders and the community. As they lodge a complaint; and mentioned in the previous chapter, the scope of the current diagnostic does not include a detailed • Use an electronic case-management system operational audit of the processes of each ombud to track and help manage their handling of scheme. Efficiency and value for money require complaints. the following: Despite having broadly similar complaint- • Efficient and documented complaint-handling handling stages,241 the processes, terminology, processes and time frames differ for each ombud scheme. Key differences include the following: • Resources (staffing and funding) sufficient for the timely resolution of cases • Use of different terminology • Skills and expertise in case-handling staff • Process and requirements for accepting new complaints • Robust quality assurance of the service • Transfer or referral-back arrangements to the • Clear performance and service standards, which financial provider for premature complaints are publicly reported • Jurisdictional limits and initial assessment • Periodic independent reviews of the ombud schemes • Time frames for responses at each stage of the complaint-handling process • In all these, consistency across the financial ombud system • Use of triage or prioritizing of complaints 13.2 EFFICIENT AND • Assessment and investigation processes DOCUMENTED COMPLAINT- • Level of informal engagement with the parties HANDLING PROCESSES240 • Status of information collected in resolving a The complaint-handing processes of the ombud complaint schemes are documented in various ways. • Use of provisional decisions All of them • Appeal processes • Have their own individual internal guides and training documents setting out for staff the 13. EFFICIENCY | 127 Time Frames • For non-responses by financial providers, the mechanisms used by the ombud schemes range Timely resolution of complaints requires an from automatically escalating a complaint to ombud scheme to establish clear time frames for the next stage of the process, through levying the parties to provide information and responses additional charges (which in one ombud scheme at each stage of the complaint-handling process. can be up to double or triple the standard case The ombud scheme also needs to be able to move fee), to drawing an adverse inference against the the case on when the parties do not meet these time provider and proceeding to decide the complaint frames (and be able to seek action by the regulator on this basis. against financial providers who persistently delay). • Sometimes, the ability to take the various • All of the ombud schemes’ rules and procedures approaches mentioned above is explicitly set set out clear time frames for responses by financial out in the rules, while other schemes base this providers and complainants and include internal on general law principles. One ombud scheme guidance for staff on the completion of each step. publishes in its annual review the names and There is considerable variation across the schemes numbers of second reminder responses where an in the time limits for a response by the parties once insurer has over five reminders.242 the matter becomes a formal complaint handled by the ombud scheme. • The PFA said that getting a timely response from the parties to a complaint is a major issue for • Those ombud schemes that have a transfer them. This leads to the longer time taken by the process—where they refer premature complaints PFA to begin its formal review of a complaint and to the financial provider, in order to give them an in the average time taken to resolve complaints opportunity of resolving the complaint directly compared to the other ombud schemes. with the customer—typically allow about 20 days for this process to take place. • Table 13A summarizes the time limits that the ombud schemes give when referring a premature • The ombud schemes have various mechanisms complaint to a financial provider, with a view to deal with financial providers and complainants to the provider resolving it directly with the who do not respond in a timely fashion. For complainant, or when communicating with the complainants, the general approach is that the financial provider about a complaint that the complaint will be closed if the ombud scheme ombud scheme is considering. does not receive a response within a set time period. Some ombud schemes will contact the complainant by SMS text and give a last telephone call before doing so. Table 13A. Time Limits for Financial Providers to Respond Time Limit for Banking Credit LTI STI JSE FAIS PFA Financial Provider to Ombud Ombud Ombud Ombud Ombud Ombud Resolve transferred premature complaint 20 days N/A 21 days 21 days N/A 6 weeks N/A243 directly with customer Respond to ombud scheme on formal 15 days 10 days 21 days 14 days 3 weeks244 2 weeks 30 days complaint 128 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Transfer or Referral Arrangements. that it has recently had to suspend the process because of resource constraints. Referral of premature complaints to financial providers, to give them an opportunity to resolve • While the FAIS Ombud does not have a formal them directly with their customers, supports the referral process (and does not record the number), efficient resolution of complaints—especially it says that it does send any premature complaints if this is built into the computerized case- on to the financial provider—giving it six management system.245 This is simpler for the weeks to resolve it. If the FAIS Ombud receives complainant than being turned away and told to confirmation that the financial provider has go to the financial provider first. It can also ensure resolved the matter, they confirm the resolution of that the financial provider takes the complaint more the complaint in writing with both parties. seriously. With a fully functioning process, the ombud scheme can do the following: • While the PFA previously did not do so, it has informed us that from September 2020 it will • Efficiently track and follow up on the status of refer premature complaints back to the financial complaints with the financial provider provider and that, if the financial provider does not respond within 30 days, it will treat the • Take early action when it identifies that a financial complaint as a formal case. provider’s complaint procedure is not dealing fairly with particular types of complaints Early Resolution • Reduce the number of discouraged complainants All of the ombud schemes seek to resolve disputes who drop out of the process at an early stage, but they differ on when and how they channel a complaint to the most • Provide safeguards so that complainants are not appropriate resolution pathway. Fuller details pressured into accepting outcomes that may not are in appendix F. Some schemes have distinct be fair pathways for different categories of complaint, There are differences among the existing ombud while other schemes have a more linear resolution schemes on whether they have a transfer/referral process. An efficient complaint process involves a process and its features. triage of complaints early in the process to determine the most appropriate resolution approach based on • The Banking Ombud and LTI Ombud have complexity and other factors. long-standing arrangements to refer premature complaints back to the financial provider • The Banking Ombud streams cases either to its automatically. As part of the “soft merger” assessment department (if the initial assessment between the LTI Ombud and STI Ombud, the STI is that the complaint has no reasonable prospects Ombud has recently introduced such a process. of success) or to its investigation department (if the complaint requires further investigation and • All three track the referrals. If a response is not clarification). received within the specified time, they treat the complaint as a formal case under the scheme’s • The Credit Ombud classifies complaints as rules. If the financial provider says that the matter either “simple intervention complaints” (where has been resolved, all three contact the complainant no further information is required) or more to confirm whether the matter has been resolved complex “facilitated complaints” (where further satisfactorily or the complainant wants to the information and investigation are required). ombud to handle it as a formal complaint. • The LTI Ombud assesses complaints on receipt. If • The Credit Ombud used to have a formal referral they are identified as capable of quick resolution, process for premature complaints but informs us they go into a fast-track process. An adjudicator 13. EFFICIENCY | 129 liaises with both parties, mostly by phone, to try to • Banking Ombud, Credit Ombud, LTI Ombud, and resolve the complaint without the usual formalities STI Ombud: of waiting for a written response from the insurer. - These are funded by levies and/or case fees. The • The STI Ombud streams simpler matters (not amounts paid by financial providers are based requiring further information following the initial on the size of the provider, the workload that response) into its fast-track process. Complaints they create, or a combination of these factors. that require further information and investigation are streamed into its standard complaints process. - Each prepares an annual budget based on expected activities, plans, and staffing levels • In the JSE, its Market Regulation Division over the coming year sufficient to cover its investigates all complaints that were not resolved operating costs. They base these plans on past by the financial provider. Only in the rare cases trends and a review of case numbers, turnaround where the division does not resolve the matter do times, and other service indicators. they refer it to the JSE Ombud. - None of them consults broadly on their budgets • The FAIS Ombud’s initial case-management and business plans. The boards/councils of the team undertakes an in-depth review of the merits schemes review and approve the budgets. of a complaint within its jurisdiction. Some are dismissed because they have no reasonable - Apart from the Credit Ombud, they publish prospect of success or were resolved by the their annual accounts. financial provider in the six-week period or have • The PFA and FAIS Ombud: been settled. The rest proceed to the formal investigation stage. - They prepare annual budgets based on proposed activities and plans for the coming year, for • The PFA case manager on the relevant team approval by the minister. responsible for the fund or administrator initially assesses the case. Cases may be closed as outside - The FSCA then sets levies247 payable by jurisdiction or may be settled at this stage. The providers authorized under the FAIS Act (for the case manager can also organize a conciliation FAIS Ombud) and by pension funds registered conference. Cases that are not resolved by these (or provisionally registered) under the PF Act processes are referred on for investigation by one (for the PFA. of the adjudication teams. The major part of the budget of an ombud 13.3 RESOURCES FOR TIMELY scheme is the cost of sufficient appropriately qualified staff to operate efficiently and provide RESOLUTION OF CASES a quality service. Funding mechanisms differ between the industry • As part of the budget process, the ombud schemes ombuds and the statutory ombuds—though, in all review both the numbers and skill levels required cases, the money comes from financial providers to handle the volume and types of complaints in (and, arguably, ultimately their customers). the coming year. Staffing numbers are published in annual reviews by all but the JSE Ombud, • JSE Ombud: This scheme does not have a separate where this is not relevant. budget or accounts of its own. Under JSE rules, the JSE may require the parties to pay a deposit • Loss of its banking members in 2019 significantly to cover a portion of the costs of the proceedings, reduced the budget of the Credit Ombud, resulting and the ombud may award costs against the losing in a loss of around half of its staff. It says that party.246 this led to a period of significant disruption for the Credit Ombud as an organization. 130 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • The FAIS Ombud says the following: staff members in a scheme in handling common types of complaints. - During 2018 it undertook an audit of its Case Management Department to review • The ombud schemes have a range of other its efficiency and effective use of resources. methods to support training and staff development, Based on this review, its staff complement in including various forms of assistance for further case management was sufficient to provide education, approval of a workplace skills and an efficient, quality service for the number of training plan by an external training authority, and complaints received at that time. reporting on the progress of training plans in their annual reports. - However, because of the impact of the state of the economy on the levy, it could not fill several • The PFA said that it was facing challenges in senior positions, including a deputy ombud, recruiting and keeping appropriately qualified a risk officer and several assistant ombud staff, and that staff turnover was high in recent positions. This is creating pressure on their years.248 This was because of a combination of ability to finalize decisions in a timely way. pressures: high volumes, the demands of decision writing, a lack of specialist coverage of pension 13.4 APPROPRIATE SKILLS AND law in current law degrees, and the demand for EXPERTISE OF CASE-HANDLING good staff by higher-paying private-sector firms. STAFF • The industry ombud schemes told us that staff turnover was low; many of their staff have The ombud schemes said that their staff who significant longevity of service in their ombud resolve complaints had the knowledge and skills scheme. in resolving disputes, a general understanding of the law, and knowledge of the relevant financial- services sector. 13.5 ROBUST QUALITY ASSURANCE OF THE SERVICE • All of the ombud schemes seek to recruit staff with qualifications in law or finance, along with Each of the ombud schemes has a range of experience in the financial-services industry. In procedures to maintain quality, but the extent to some schemes, the professional staff members which they integrate these individual measures involved in preparing provisional or final decisions into a structured, documented quality-assurance are generally legally qualified. program differs. • The ombud schemes’ training plans cover in- • A robust, structured quality-assurance program is house training, mentoring, support to gain external important to ensure that the service provided by qualifications, and other skills development. an ombud is of high quality, efficient, consistent, Staff members in the ombud schemes have and supports the timely and fair resolution of access to knowledge-management systems with complaints. It can also be an important mechanism information on the usual approach of the scheme in providing confidence to stakeholders on the to particular products and complaint situations. quality, fairness, and consistency of the service. • These knowledge-management systems take • All of the ombud schemes incorporate in their various forms across the ombud schemes, process a review by a more senior person at including handbooks, training manuals, and key escalation points or decision stages. They process guides for the common types of disputes document these in the policy and procedure handled by the scheme. These measures help manuals of the scheme. ensure consistency in approach among different 13. EFFICIENCY | 131 • The following are examples of when this typically 13.6 CLEAR PERFORMANCE AND occurs: SERVICE STANDARDS THAT ARE - An ombud scheme dismisses a matter as out of PUBLICLY REPORTED jurisdiction Several ombud schemes report their performance - It closes a case as having no reasonable prospect against clear performance standards, while of success the others report their performance in terms of resolution time frames and a range of other - A case moves from initial assessment to formal outcomes. investigation • None of the ombud schemes appears to have a set - One party does not accept a settlement offer, of service standards—telling parties what standard recommendation, or provisional decision of service to expect—published in a prominent • Some ombud schemes select a percentage of cases position on their websites, but the schemes report at various stages of the complaints process for on their performance in the following ways: review by a senior manager or an ombud against a - The FAIS Ombud and PFA publish their quality-control checklist. performance against their service standards in a • One ombud scheme holds a weekly meeting of separate section in their annual reports. decision-makers chaired by the ombud or deputy - The Credit Ombud, LTI Ombud, STI Ombud, ombud, to discuss issues in the more complex or and FAIS Ombud publish the outcomes of their contentious cases. stakeholder surveys in their annual reports. • Some ombud schemes also referred us to their - All of schemes (save the JSE Ombud) publish appeal mechanisms as forming part of the quality in their annual reports data on the numbers of control for the scheme. disputes, the time taken to resolve them, and • The LTI Ombud reviews 5 percent of closed cases other information about their complaints and (chosen randomly). The other ombud schemes do complaint handling.249 not appear to include in their quality-assurance • All of the ombud schemes have a designated processes a review of a percentage of closed cases. person responsible for handling complaints about As part of their quality assurance, most of the the standard of service provided by the scheme. schemes also undertake periodic user surveys, to - The LTI Ombud has a retired judge as an see what users think of the quality of the service external Independent Assessor and includes they receive. a report from the Independent Assessor in its • The Banking Ombud, STI Ombud, and FAIS annual report. Ombud survey the parties in every closed - In the other ombud schemes, the function is complaint. carried out internally—by someone such as the • The Credit Ombud undertakes a monthly survey head of case management, an assistant ombud, of users, the results of which are reported to their or an ombud. council quarterly. - Only the LTI Ombud and STI Ombud include • The LTI Ombud conducts a survey of users every in a prominent position on their websites two years, and the PFA conducts one every three information about how to make a service years. complaint. 132 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 13.7 PERIODIC INDEPENDENT operations, efficiency, and performance. But REVIEWS these differ from the periodic independent review referred to above, as they do not assess the scheme International good practice includes periodic against international standards for good practice independent reviews of an ombud scheme, to by ombuds. support stakeholder confidence in the fair and efficient operation of the scheme. 13.8 CONSISTENCY OF APPROACH ACROSS OMBUD SYSTEM • Only the LTI Ombud scheme conducts a periodic independent review of its scheme against The complaint-handling processes, ways of international standards. classifying and reporting complaints, resolution - The LTI Ombud scheme’s governing body outcomes, and performance outcomes differ commissions a periodic independent review significantly for each ombud scheme. This makes every three to five years to assess the scheme it difficult to measure the efficiency of the overall based on international good practices and ombud system. principles for ombud schemes. • Table 13B sets out information provided by - Reviews were carried out by Prof. J. C. van der the ombud schemes in response to the WBG Walt in 2005, Adv. Neville J. Melville in 2010, questionnaire showing average cost of cases and Dr. de la Rey in 2015. A further review closed, percentage of cases closed within six was due in 2020 but deferred because of the months, and the number of cases closed per full- COVID-19 pandemic. time equivalent (FTE) staff member. It excludes the JSE Ombud, because it does not have a budget - The LTI Ombud scheme publishes on its and staff of its own. website the report of the independent review and its response to any recommendations. • The information in the table needs to be interpreted cautiously, given the range of factors influencing • The other ombud schemes have a range of the figures, including differences in the mix and independent audit and reporting obligations complexity of cases handled and differences in the and conduct reviews on specific aspects of their terminology used by different ombud schemes. Table 13B. Staffing, Costs, and Time Frames in 2019 Banking Credit LTI STI FAIS PFA Ombud Ombud Ombud Ombud Ombud Total expenditure R 30.2 R 16.0 R 29.5 R 42.8 R 40.0 R 72.5 million million million million million million Total staff 29 12250 37 47 49 60 Expenditure/FTE staff R 1,042,592 R 1,333,333 R 797,297 R 910,807 R 817,082 R 1,209,100 Total complaints closed 6,333 4,937 3,558251 9,176 4,507 10,289 Expenditure/complaints R 4,774 R 3,241252 closed R 8,291253 R 4,670 R 8,883 R 7,051 Cases closed/FTE staff 218 411 97254 195 92 171 Cases closed within six 95.10% 98.48% 87.00%255 79.00% 91.18% 49.00%256 months 13. EFFICIENCY | 133 • While small schemes can benefit from a flat - Public performance reporting organizational structure and flexibility, the proportion of overhead costs can be relatively - Degree of engagement with the industry high—because any organization needs a minimum • They considered that these differences led to number of staff for essential IT, human resources, confusion for consumers, delays, complexity, and finance, and organizational-support functions. an increased cost for industry. • The statutory ombuds (the FAIS Ombud and PFA) • They expressed concern that differences in rules also have the administrative costs of complying among the ombud schemes (for example, on the with the requirements of the PFM Act. amount that can be awarded) can lead to forum shopping by consumers. 13.9 STAKEHOLDER VIEWS • They thought that some ombud schemes appeared Industry respondents were broadly supportive of to deliver a notably better and more efficient the performance of the current ombud schemes service than others. that they deal with regularly. • Resource constraints (based on limited funding • The following key positive features were sources) combined with an increase in the number identified: of cases had an impact on dealing with matters efficiently. - Independence and good governance • The entire process can seem very lengthy— - Generally efficient complaint-handling especially when viewed from a consumer’s processes perspective—and there is little visibility on the - Specialist expertise status of a complaint during the process. • One of the main areas of value for financial • In the absence of a reliable benchmark, it is not providers is that consumers having free access to possible to comment on value for money. an ombud does the following: • In respect of value for money, a weakness is the - Reduces litigation costs negative financial impact of regulatory and ombud levies/case fees on financial providers. - Results in less adverse media comment 13.10 CONCLUSIONS - Leads to greater confidence in the industry Industry stakeholders, however, also raised a The existing arrangements for each ombud range of inconsistencies and other issues. scheme cover many of the features of international good practice designed to ensure that the • They highlighted inconsistencies in the following: financial ombud system provides a consistently good quality of service and value for money. - Time frames • The ombud schemes all have well-developed and - Availability of a transfer/referral back documented complaint-handling processes with a focus on the timely resolution of complaints. - Approaches to decision-making (including the application of equity principles) • Each ombud scheme prepares an annual budget based on expected volumes and types of - Degree of legalistic approach complaints and operational plans for the year. - Appeal processes 134 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • The ombud schemes have recruitment, human arbitration established under the JSE rules on a resources, skill-development, and training plans case-by-case basis for a specific dispute when the designed to ensure that the scheme has the need arises. expertise and qualified staff. Areas for potential improvement include the • All of the ombud schemes have internal quality- following: assurance activities built into their complaint- handling processes. • There should be a consistent set of rules and processes for handling complaints, including the • Several of the ombud schemes report their following: performance standards and the results of their stakeholder surveys and have prominent - Transfer of complaints sent to the incorrect information on how to make a service complaint. ombud scheme • One ombud scheme (the LTI Ombud) includes - Transfer/referral process for premature a report from an external reviewer in its annual complaints across all sectors report and conducts periodic independent reviews - Time frames for responses from financial of the scheme every three to five years. providers across the ombud system However, there are gaps for some of the ombud - Use of early triage and streaming of disputes schemes and challenges for the ombud system as a whole. - Engagement and interaction with the parties • Several of the ombud schemes said that they have - Information exchange staffing challenges that make meeting time and quality standards a challenge. - Use of provisional decisions • One ombud scheme has highlighted the challenges - Decision making it faces in getting a timely response from the - Appeals parties to a complaint, and that this lengthens the time it takes to resolve complaints. • A common case-handling and document- management IT infrastructure should be created. • The multiplicity of schemes and their different approaches to reporting performance makes it • A well-structured quality-assurance program difficult to assess the costs and efficiency of the should be developed—including review of a ombud schemes and the ombud system. percentage of closed cases—with clear quality, time, and fairness criteria linked to process and • The large number of smaller schemes, each with quality improvements. its own IT system, case management, and other organizational support, causes duplication of effort • There should be a published service charter and increased costs. This is particularly relevant including details of how a service complaint for investment in IT systems, which underpin can be made, the process for doing so, and who the efficient complaint-handling processes of a handles the service complaint. modern ombud scheme. • Annual reports should include reporting against • The JSE Ombud model differs significantly common service and performance standards. from the other ombud schemes, and its process and practices do not conform to the usual • Any ombud scheme should commission an model of an ombud of the type contemplated independent review of its operations (comparing by the international good practices used in this them against international good practice) every assessment. It is more akin to a form of a private three to five years and publish the report. 13. EFFICIENCY | 135 14 OPENNESS This chapter considers how far the financial ombud system is clear and open to scrutiny about its work— and the lessons that can be drawn from it to improve market outcomes for consumers. 14.1 CRITERIA • The industry schemes are free to issue their annual reports without having to obtain prior approval of The report considers the information that the the contents from anyone external to the scheme. ombud system makes available about the work The report from the FAIS Ombud is first approved that it does and about systemic issues that arise. by its audit committee (which it shares with Issues considered include the following: the FSCA), and the report from the PFA is first approved by the Minister of Finance. • Does any financial ombud scheme publish a report at least yearly? • Table 14A summarizes what the ombud schemes said about the contents of their reports. There are • Does this give information about the cases it has many similarities, but comparison identified the handled and the way in which it has handled them? following differences and gaps: • Does it publish other information about its work - Reporting of the time taken to resolve complaints or plans? tends to be based on an average across all complaints (which can be misleading), rather • Does it provide generic information to assist early than by method of resolution. resolution of complaints? - As mentioned in chapter 12, not all schemes are • Does its case-handling system record all the clear about the numbers of cases in which the relevant information about each case? outcome was more favorable to the complainant • Is it clear how far any information that it collects in than what (if anything) the provider had offered. dealing with complaints is treated as confidential? - Some but not all include data on how • Does it identify systemic issues, and new/emerging complainants heard about the ombud scheme. issues, that may require action by regulators? There is limited data on the proportions of complaints from consumers or businesses. • In all these, is there consistency across the financial ombud system? - There is limited socioeconomic data (geographical spread, language, age group, • Does it provide industry-wide information, to social group, or gender) about complainants reduce complaints and improve market outcomes that would assist in tracking accessibility, as for consumers? well as assisting market conduct regulators and policy makers with broader market-monitoring 14.2 ANNUAL REPORT and policy work. All the ombud schemes, apart from the JSE - In most of the reports, it is not clear what action Ombud, publish an annual report—though has been taken to address systemic issues with differences in content, processes, and terminology regulators, providers, and consumers—and make it difficult to compare some aspects what impact this has had on improving market of their work. outcomes for consumers. 14. OPENNESS | 137 - As mentioned in chapter 13, not all ombud The differences in content, processes, and schemes have service standards that can be terminology also make it difficult to gain a reported against. system-wide view across the financial sector. An important role for an ombud system, alongside - Most include the annual accounts, or a summary resolving individual complaints, is to highlight of them, but some do not. Not all industry actual and potential systemic issues that can harm schemes show remuneration of, and meeting market outcomes for consumers and to highlight attendance by, members of boards/councils. these for action by regulators or the industry. But Table 14A. Contents of Ombud Schemes Annual Reports Banking Credit LTI STI FAIS Does the Annual Report Include PFA Ombud Ombud Ombud Ombud Ombud Numbers and types of complaints Y Y Y Y Y Y received? Number and types outside jurisdiction? Y Y N Y Y Y Number in jurisdiction that the scheme N Y N N Y Y declined to deal with? Number of complaints that were Y Y N N Y Y discontinued? Number of complaints that were Y Y Y Y Y Y resolved? Number resolved in favor of the Y Y Y Y Y Y complainant? Number resolved in favor of the Y Y N Y Y Y financial provider? Time taken to resolve different types of Y Y Y Y N Y complaints? The rate of provider compliance with outcomes?257 N N N Y Y Y Representative case studies to Y Y Y N Y Y illustrate work handled? Systemic/significant problems in the Y Y Y N Y Y financial system? The scheme’s governance N Y Y Y Y Y arrangements? How the ombud’s independence is Y Y Y Y Y N preserved? Arrangements for quality control? N Y Y N Y N Cooperation with other ombud Y Y N N Y Y schemes? 138 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Whether it tells the regulator about systemic problems in the financial N N Y Y N N system? Whether it tells the regulator about systemic problems with individual N N Y Y N N providers?258 Source: Replies by ombud schemes to WBG questionnaire in South Africa, the differences in content and 14.4 CASE-HANDLING terminology make it more difficult to identify and INFORMATION AND DATA compare system-wide issues (whether relating to particular products or providers) and the impact of All of the ombud schemes, apart from the JSE the ombud system in improving customer outcomes. Ombud, have computerized complaint-handling systems. 14.3 OTHER PUBLISHED INFORMATION • In the Banking Ombud, Credit Ombud, STI Ombud, and FAIS Ombud, the electronic files in There are differences in the other information the case-handling system form the primary record that the ombud schemes publish in addition to of each complaint. their annual reports. • In the LTI Ombud, the electronic files in the • All the schemes, apart from the JSE Ombud, complaint-handling system form the primary publish details of their approach to common record of each complaint, though a paper file is complaints. also created when a case is investigated. • All the schemes, apart from the Credit Ombud and • In the PFA, complaint files comprise a mix of JSE Ombud, publish ombud final decisions. electronic records, in the complaint-handling system, and paper records. • Some of the schemes publish regular newsletters. • All these complaint-handling systems, except the • Only the Credit Ombud publishes casework data FAIS Ombud’s system, are event driven, so that more often than annually. prompts appear when actions are due. • Only the Credit Ombud and PFA consult publicly • All these complaint-handling systems produce about changes in their processes. management data on case numbers, outcomes, and the time taken. • All the schemes, apart from the FAIS Ombud and JSE Ombud, help to train consumer advisers. • The JSE Ombud does not have a computerized case-handling system, but its case numbers are • All, apart from the FAIS Ombud and JSE Ombud, very small. help to train providers’ complaints departments. • Apart from the PFA, all of the ombud schemes treat case information as confidential—subject to exceptions (such as publication of ombud decisions or where ordered by a court). 14. OPENNESS | 139 • But all of the ombud schemes, apart from the JSE • The STI Ombud and (since their soft merger) ombud, say they have power to publish ombud the LTI Ombud have biannual meetings with the decisions, naming the financial provider. FSCA to discuss industry-related systemic issues as well as complaint trends. • And all of the ombud schemes, apart from the FAIS Ombud and JSE Ombud, say they have • Under the FAIS Act and its rules, the FAIS Ombud power to publish complaint data about named is required to give the FSCA copies of ombud financial providers. determinations and to report information that may prompt the FSCA to consider action under • All of the ombud schemes say they are able to the FAIS Act—either generally or in relation to a report serious regulatory breaches to the relevant particular matter. financial regulator.259 • The PFA provides the FSCA with quarterly • All of the ombud schemes, apart from the reports identifying problems, trends, problematic Banking Ombud and STI Ombud, say they are retirement funds, and conduct matters. able to report any crime to those who investigate or prosecute crime. The NCR and the ombud schemes that deal with complaints about credit (the Banking Ombud 14.5 COMMUNICATING WITH THE and Credit Ombud) each have information that FINANCIAL REGULATORS is relevant to the other in the fulfillment of their respective functions. Currently, there are variations The FSCA and all the ombud schemes each in the communications, interactions, and reporting have information that is relevant to the other between the NCR and the two different schemes. in the fulfillment of their respective functions. • The NCR and Credit Ombud are in the process The FSCA is in the process of concluding of finalizing a memorandum of understanding memorandums of understanding with the ombud that provides for biannual reports on statistics schemes, to strengthen collaboration, especially as well as cooperation on other matters, such as in respect of sharing of information. Currently, consumer education. there are variations in the communications, interactions, and reporting between the FSCA • The Banking Ombud says that the NCR has never and the different schemes. approached it for data or information; it always invites the NCR to functions such as the launch of • The Banking Ombud gives the FSCA a monthly the annual report; an NCR manager has attended report on complaint statistics per bank and has some functions; but there has been no interaction quarterly meetings with the FSCA. with NCR senior management. • The Credit Ombud has regular quarterly meeting Effective market-conduct regulation can be with the FSCA in order to share information on its assisted by the availability to regulators of work program. good-quality information. In that context, the • The LTI Ombud gives the FSCA quarterly data, current differences in the ways that different plus information about types of complaints and ombud schemes classify and report complaints is any concerns it has about particular providers, unhelpful—though the regulators are probably which are discussed at meetings held at six- hampered even more by the lack of consistent month intervals. standards for the ways in which providers identify, handle, classify, and report complaints. • The STI Ombud tells the FSCA if and when it has concerns about specific insurers and is likely to align with the LTI Ombud in regular supply of information. 140 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 14.6 STAKEHOLDER VIEWS • The memorandums of understanding created a standardized approach for mutual exchange of Stakeholders generally considered the ombud information, with feedback on actions taken in system to be open about its work, and valued response; and the comprehensive annual reports issued by the • The memorandums were published by the ombud schemes. Some stakeholders commented regulators and the schemes, so that the nature on differences in the information covered by the and extent of the information exchange is different annual reports or indicated that they found publicly understood. some ombud schemes more open than others to discussing issues that arise. One said they should Areas for potential improvement include the follow the corporate governance requirements in the following: King IV Report.260 • Annual reports with comparable contents, 14.7 CONCLUSIONS including the following: - Data on the performance of the ombud scheme The ombud schemes are generally open to public scrutiny about the work that they have done, but - Socioeconomic information about users differences in content and terminology hamper system-wide comparisons and conclusions. - Sectoral and system-wide issues in the market that harm outcomes for consumers • These differences make it difficult to compare the performance of the different parts of the ombud • Prompter reporting of some key issues and data261 system and to analyze its effectiveness as a whole. (perhaps quarterly) • They also make it more difficult to reduce the • Greater public engagement in developing future causes of complaints and improve consumer plans and processes outcomes through identification of trends across the financial system, including new and • Comparable and documented arrangements for emerging issues. information sharing with the FSCA and NCR, including the following: • Although the existing ombud schemes are generally open about the work that they have - Mutual exchange of information done, they are less open publicly about their - Feedback on actions taken in response proposed plans for future changes. - Publication of the extent of that information There is dialogue between the ombud schemes sharing and the FSCA, and between the Credit Ombud and the NCR, about issues identified by the ombud schemes in the course of their work—and that dialogue is to be covered by memorandums of understanding. It would be helpful if • A similar dialogue, backed up by a memorandum of understanding, were established between the Banking Ombud and the NCR; 14. OPENNESS | 141 15 OMBUD COUNCIL This chapter summarizes our assessment of the Ombud Council and our conclusions about its place in a reformed financial ombud system. 15.1 CRITERIA - Promoting public awareness of ombuds and ombud schemes and their services In assessing the role of the Ombud Council, we - Taking steps to facilitate access by financial have considered it in relation to the following two customers to appropriate ombuds aspects: - Resolving jurisdictional overlaps among • Its currently envisaged role as regulator of the different ombud schemes financial ombud system, including its power to effect changes in the system - Monitoring the performance of ombud schemes262 • Whether it could be appropriate for it to become, • Before recognizing an industry ombud scheme, the as some have suggested, the governing body of a Ombud Council must submit the scheme’s rules to consolidated ombud scheme the FSCA and be satisfied that the scheme satisfies a number of criteria, including the following: 15.2 EMERGING POSITION - A significant number of members and sufficient As explained more fully in chapter 6, the Ombud resources and capacity Council is given extensive powers under chapter - Specified scope and adequate and appropriate 14 of the FSR Act, which came into force on provision for making complaints November 1, 2020. - Requirements for members to tell customers • As of December 1, 2020: about the scheme - The minister had appointed six members of the - Rules that are legally binding on members and Ombud Council (excluding the Chief Ombud), require them to comply with its determinations though their names had not yet been announced. - Adequate provision about the employment - The minister had not yet appointed the Chief terms and conditions of the ombud Ombud, as the recruitment process for that post had not been completed. - The ombud is required to apply, where appropriate, principles of equity263 • The role of the Ombud Council is to assist in ensuring that financial customers have access to • To ensure access to affordable and effective, affordable, effective, independent, and fair ADR independent and fair ADR processes, the Ombud processes, including by the following: Council may make rules for ombud schemes on the following: - Recognizing industry ombud schemes - Their rules and their governance - Promoting cooperation and coordination among ombuds - The qualifications and experience of ombuds - Striving to protect the independence and - Fit-and-proper person requirements for ombuds impartiality of ombuds and members of governing bodies 15. OMBUD COUNCIL | 143 - The definition and type of complaints to be dealt process, appointed for a sufficient term (typically with and dispute-resolution processes at least three years), and protected from removal without just cause; - Any other matter appropriate and necessary for achieving the council’s statutory objectives264 • Controls its own resources and has a funding structure that ensures that those providing the • The Ombud Council has a number of other powers funds cannot influence its work; over ombud schemes, including the following: • Cannot be subjected, directly or indirectly, to - It may suspend or revoke the recognition of a influence by parties to disputes handled by financial scheme.265 ombud schemes, regulators, or politicians; and - It may direct an ombud or scheme not to • Publishes regular reports on its work and on issues contravene a relevant financial-sector law.266 that give rise to complaints. - It may debar an individual who has contravened a We have concerns about the independence of the financial-sector law or an Ombud Council rule.267 Ombud Council in its role as regulator, and we do - It may issue an administrative penalty for breach not consider that it is sufficiently independent to of a relevant financial-sector law.268 become the governing body of a consolidated ombud scheme. There appear to be no requirements for - It may conduct supervisory on-site inspections and investigations of ombud schemes.269 • The members of the council, including the Chief Ombud, to be chosen by a transparent process, - Any changes to the rules of a recognized industry following a public advertisement; scheme must be approved by the council.270 • The council collectively to provide a balance • If there is no recognized industry scheme or of understanding in respect of the regulation of statutory scheme that covers complaints about a financial providers, the legitimate concerns of particular financial product/service, the Ombud consumers of financial services and credit, and Council may—after consulting relevant ombud the legitimate concerns of the financial industry; schemes—designate one or more ombud schemes to deal with them.271 • The members of the council to be appointed on terms that secure their independence (including • The Ombud Council must operate one or more from the minister), and for a sufficient term centers to assist financial customers to formulate (typically at least three years); complaints and identify the appropriate ombud scheme.272 • The Chief Ombud to be appointed by an independent body (rather than the minister), and their pay to be linked to some appropriate external benchmark; 15.3 INDEPENDENCE • The Chief Ombud to be appointed on terms that As the Ombud Council is given significant, secure their independence (including from the and sometimes intrusive/coercive, powers (for minister), and for a minimum term of five years; example, on-site inspections and administrative penalties) over financial ombud schemes, it is • The Chief Ombud not to have worked in a financial appropriate to consider its independence. So we institution (or an industry body for the sectors) in have considered whether the FSR Act provisions the previous three years; ensure that the Council • The Chief Ombud to be protected from removal— • Has members, including the Chief Ombud, who except for incapacity, misconduct, or other just are independent, recruited through a transparent cause and only by an independent body; or 144 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • The Ombud Council to publish regular public own independence, but these powers would reports on its work and on issues that give rise to still be excessive if the Ombud Council’s complaints. independence were addressed. It is also relevant to consider how far the Ombud Council, in its regulatory role, protects/ 15.4 EFFECTIVENESS enhances (and does not diminish) the necessary Giving the Ombud Council’s chief executive independence of individual ombuds. the title of “Chief Ombud” is bound to create • It will help to protect/enhance the independence unfortunate confusion about the role of the of ombuds that, under the FSR Act Chief Ombud and that of the Ombud Council. The name implies (and some stakeholders we - The objectives of the Ombud Council include have spoken to believe) that the Chief Ombud will ensuring an ADR system that is independent oversee the decisions in individual cases handled by by striving to protect the independence and the various ombud schemes—which is not the case. impartiality of ombuds; This is likely to add further confusion to a system that, as demonstrated by this report, is already - In considering whether to recognize an industry overly confusing. ombud scheme, the Ombud Council must be satisfied that its rules make adequate provision The Ombud Council has powers that could help about the employment terms and conditions of in welding the existing financial ombud schemes the ombud; and into a system that provides consistent redress in all appropriate areas of financial services. As - Rules made by the Ombud Council itself must mentioned earlier, the Ombud Council can make not interfere with the independence of an ombud. rules on ombud scheme rules and governance, • Some of the powers currently given to the Ombud the qualifications and experience of ombuds, the Council by the FSR Act, however, raise the propriety of ombuds and members of governing following concerns: bodies, the definition and type of complaints to be dealt with, dispute-resolution processes, and any - These powers include intrusive/coercive powers other matter appropriate and necessary for achieving (for example, on-site inspections, debarring the Ombud Council’s statutory objectives. individuals, and imposing administrative penalties) that go far beyond international The Ombud Council’s ability to simplify the comparators for oversight of ombud schemes. system, however, is unnecessarily constrained by the following two statutory prohibitions: - These powers appear to copy powers given to the FSCA to enable it to regulate commercially • The prohibition on an industry ombud scheme driven, profit-making financial institutions. dealing with anything that falls within the scope They are inappropriate for the regulation of of a statutory ombud scheme, without any independent, impartial, not-for-profit, dispute- flexibility for the Ombud Council to modify resolution bodies. this, will perpetuate the problem of many single transactions falling across two ombud schemes.273 Though some of the Ombud Council’s powers - ­ may assist in the short term to drive through • The designation of the FAIS Ombud as the changes in the light of this report, their nature and backup ombud schemes for any financial provider extent are likely to diminish the independence that has not joined an industry scheme, without of the ombud system. any flexibility for the Ombud Council to modify this, will constrain its ability to create logical - The problem is exacerbated by the deficiencies jurisdictional boundaries.274 that we have identified in the Ombud Council’s 15. OMBUD COUNCIL | 145 There appear to be no automatic adverse • For these reasons, a properly functioning center consequences (that the Ombud Council or FSCA that gives effective access to all of the ombud can enforce) for a financial institution that fails schemes will be difficult to achieve until the to join an ombud scheme. Under section 211(3) of complexity and inconsistencies of the existing the FSR Act, a financial institution (as defined in the system have been resolved, so that the same rules act) must be a member of any recognized industry and processes apply across the system. And if this ombud scheme that covers the financial product/ is achieved by consolidation of ombud schemes, services that it provides. It must tell its customers the consolidated scheme will be better placed about applicable ombud schemes and how to contact than the Ombud Council to provide one or more them, in accordance with rules issued by the Ombud points for such cross-sector access. Council. But the consequences for a financial institution that fails to do so are not set out. It appears that the Ombud Council’s powers are restricted to complaints by financial customers In addition, there appear to be no automatic as defined in the FSR Act,275 which leaves out adverse consequences (that the Ombud Council some potential complainants. The definition or FSCA can enforce) for a financial institution includes beneficiaries as well as customers but does that joins an ombud scheme but then ignores not appear to cover it. Under section 215 of the FSR Act, a financial institution must comply with the rules of a recognized • Prospective customers, for complaints about industry ombud scheme of which it is a member, the financial institution’s wrongful offer to and a financial customer (as defined in the act) provide a service (perhaps involving unlawful may enforce those rules as if they were part of their discrimination); contract. But that throws the enforcement obligation • A guarantor or a surety for a loan (or credit) on financial customers, few of whom would be in a that was provided to a customer by the financial position to take the court action required. institution; The Ombud Council is required to operate one • Someone whose credit history has been or more centers to assist financial customers to (incorrectly) recorded by a credit bureau (so formulate complaints and identify the appropriate that their ability to borrow has been adversely ombud scheme. This adds a signposting stage to the affected); or existing complex situation. • A non-customer from whom a debt is being • As explained in chapter 13, the initial receipt (incorrectly) claimed (such as where the lender has of a complaint is a crucial stage in the ombud wrongly confused them with the actual debtor). process, where effective triage can facilitate appropriate understanding, routing, and handling of the complaint. This requires the initial stage 15.5 STAKEHOLDER VIEWS to be handled by people who fully understand Non-ombud stakeholders knew little of the the scope, powers, and approach of the relevant Ombud Council, and the few that had heard of ombud scheme. it misunderstood the intended role of the Chief • The first contact with a complainant should be a Ombud. The ombud schemes, whose views may key step in a well-designed end-to-end complaint- be tempered by the prospect of coming under its handling process, not an extra layer added on at the oversight, knew a lot about the Ombud Council. front end. Effective complaint handling requires • One of the ombud schemes saw a major role for the as much as possible to be sorted by the front-line Ombud Council in promoting public awareness of contact person—and to minimize handoffs from ombud schemes and the services they provide. one person to another, which can discourage less- confident complainants and lead them to give up. 146 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Another saw the main advantage of chapter 14 • The Ombud Council is not sufficiently independent of the FSR Act as being that all registered credit to act as an intrusive regulator of independent providers will be compelled to belong to an ombud schemes and still less to become the ombud scheme. governing body of a consolidated system. • Another welcomed the Ombud Council’s clear • Some of the Ombud Council’s intrusive/coercive mandate and capability to harmonize and improve powers over ombud schemes may damage the the ombud system, with strong oversight powers. perceived independence of the ombud schemes. • Another considered that the Ombud Council’s • Those of the Ombud Council’s functions and effectiveness would depend in large measure on powers designed to encourage standardization and the people who were appointed. It welcomed the cooperation, while appropriate for the currently prospect of more standardization and cooperation fragmented system, would be unnecessary (and but feared overstandardization that did not take cease to be cost effective) if there were a significant account of the features of different financial sectors. consolidation of the ombud system. • All the industry ombud schemes welcomed the fact • To enable consolidation of the system and the that the Ombud Council would fill the vacuum left creation of clear jurisdictional boundaries, the when the FSOS Council was disbanded, leaving Ombud Council should have power (where no existing body to approve rule changes or to appropriate) to do the following: sanction the merger of the LTI Ombud and STI Ombud. - Authorize a recognized industry ombud to deal with a complaint against a financial provider that • One expressed concern that neither the Ombud is already within its jurisdiction, even if part or Council nor the FSCA appeared to have been all of the complaint falls within the jurisdiction given powers to take action against financial of a statutory ombud scheme. providers that fail to join an ombud scheme or, if they do join, fail to cooperate with it and abide by - Designate a recognized industry ombud as the its decisions. backup ombud scheme in a particular sector (or sectors) to exercise jurisdiction over any • All the ombud schemes considered that the financial provider that has not joined an industry powers given to the Ombud Council appeared to scheme in that sector (or those sectors). be sufficient for it to fulfill its statutory objectives. • There should be explicit adverse consequences (that can be implemented by the Ombud Council 15.6 CONCLUSIONS or the FSCA) if a financial institution does not The powers of the Ombud Council could help join relevant ombud schemes or, having joined, implement and oversee reforms resulting from does not comply with their decisions.276 this report, but there are a number of significant • Properly functioning centers that give effective concerns about its constitution and powers. access to all of the ombud schemes will be • The title “Chief Ombud” is likely to create difficult to achieve and have limited value unless confusion over the true role and responsibilities and until the complexity and inconsistencies of of the chief executive of the Ombud Council the existing system have been resolved, and a and should be replaced by another title more consolidated ombud system will be better placed consistent with the role—such as Chief Executive to provide such cross-sector access points as part or Director-General. of an integrated complaint-handling process. 15. OMBUD COUNCIL | 147 16 ASSESSMENT SUMMARY This chapter summarizes our assessment of the current ombud system, as set out more fully in chapters 8 to 15. 16.1 OVERVIEW Our findings on the current system should not be seen as any criticism of those involved with the Criteria work and governance of the existing schemes. We have been impressed by their professionalism and In assessing the financial ombud system, we commitment. They are have taken into account both international good practice and local conditions in South Africa • Doing an effective job within the constraints of (including the views of stakeholders). Chapter the differing structures that they have inherited; 2 sets out the available sources of guidance on international good practice for financial ombuds • Skilled, knowledgeable, and committed to and the key attributes that can be distilled from continuous improvement; and that guidance. • Respected nationally and internationally. Upsides Downsides The current financial ombud system provides an Current arrangements are based on sector- important ADR service for many consumers of specific arrangements plus piecemeal statutory financial services in South Africa. reforms. This has resulted in an ombud system • In a complex environment, the existing system that is fragmented and lacks overall coherence and is affected by various gaps and deficiencies - Provides free access to out-of-court dispute affecting individual schemes. The more deeply resolution for many consumers; we looked, the more complex and inconsistent the system appears. As explained in chapters 8 to 15, - Is generally seen by stakeholders as independent, issues include the following: professional, expertise based, and engaged; and • Jurisdictional boundaries that are unclear - Has rules and processes that incorporate fair and equitable principles. • Overlaps, including between industry and statutory ombud schemes • The Banking, Credit, LTI, STI, and FAIS Ombuds and the PFA have several strengths, including the • Gaps in coverage and mismatches with new following: products - A commitment to delivering high-quality, • Significantly differing rules, eligibility, processes, efficient, and independent dispute resolution powers, and appeal mechanisms - A clear focus on measuring and improving • Differing governance arrangements customer service • Differing funding, with some duplication of levies - Examples of process improvements, system enhancements, and efforts to expand community • Uncoordinated outreach and accessibility outreach activities activities 16. ASSESSMENT SUMMARY | 149 • Lack of socioeconomic-data collection by the • Inconsistency in processes, approach, and schemes, raising doubts about accessibility to all outcomes among otherwise-similar complaints, simply because of the identity of the ombud These create complexity and inconsistency scheme into whose jurisdiction they fall for consumers, financial providers, and the ombud schemes themselves. That complexity and • Confusion for consumers and consumer advisers inconsistency cause inefficiencies and cost money. The and delay—with about 12 percent of complaints fragmentation of the system hampers improvements having to be referred from one ombud scheme in its visibility and accessibility. And it hampers to another developments in training and systems that could be achieved if the structure were more coordinated. • Serious risk that some consumers may be so discouraged by the complexity that they may be deterred from pursuing their complaint at all or 16.2 CONCLUSIONS may give up prematurely The development of the individual financial • Additional work for financial providers—training ombud schemes to date has produced significant staff, understanding the requirements applicable to benefits for consumers and the financial sector, different ombud schemes, and correct signposting; but the overall system and its components will need significant changes to make it fit for purpose • Additional work for the initial stages of ombud now and in coming years. schemes—training staff, understanding eligibility/ limits/gaps/overlaps, and referring complainants • We acknowledge the benefits provided by the to other schemes; and current ombud schemes and the valuable work of those involved with them. • Scope for forum shopping by vexatious complainants able to use the complexity in order • But we consider that some fundamental changes to pursue issues through multiple channels. are essential in order to fit the system better for the present and the future. Areas for potential improvement include ensuring the following: • And we raise issues about the governance of the Ombud Council and the nature and extent of some • That the ombud system covers all products of its powers. and services that consumers are likely to see as financial (including credit and payment services, • We go on (in the next chapter) to make specific and also cooperative banks and other cooperative recommendations for reform. financial institutions) Effectiveness of Scope277 • That any boundaries between the scope of We consider that there are material different ombud schemes are clear and logical, inconsistencies in the coverage of financial avoiding overlaps, and can be expressed in terms providers and activities, in the coverage of intelligible to a consumer complaints, and in time limits and that these • Consistency in defining who is able to refer a significantly undermine the effectiveness of the complaint to a financial ombud and harmonization system. In our assessment, all of this complexity between this and the definition of “complainant” must inevitably create the following: in the COFI Bill) • Inconsistency in whether otherwise-similar • Consistent and less inflexible time limits within complaints are covered, simply because of the which a complaint must be referred to a financial identity of the ombud scheme concerned ombud 150 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Effectiveness of Interaction and Powers278 • Consistency in how far financial ombud decisions are binding on the parties, and consistency in the There are material inconsistencies, and availability of effective mechanisms and support deficiencies, in the definition of what constitutes for complainants in enforcing those decisions a complaint, relevant obligations for financial providers, redress a financial ombud can award, Independence279 and the effect and enforcement of ombud decisions, and these significantly undermine the The existing governance arrangements cover effectiveness of the system. In our assessment, all many of the features of international good of these issues must inevitably create the following: practice designed to demonstrate independence of operation and decision-making. • Inconsistency in how financial providers treat complaints and to what extent financial providers • Casework decisions are reserved to the ombuds tell complainants about the ombud system by the governance documents of the industry schemes and by the legislation covering the • Inconsistency (and, in some cases, inadequacy) of statutory schemes. outcomes among otherwise-similar complaints, simply because of the identity of the ombud • The four main industry ombud schemes have scheme into whose jurisdiction they fall boards/councils with a diversity of well-qualified and experienced members, well able to stand up • Encouragement of forum shopping, where for the scheme’s independence. jurisdictional boundaries are unclear, because one ombud scheme may have power to award much • Only a minority of the members of the boards/ more redress than another ombud scheme councils are from the industry, and all the chairs are currently independent of the industry. • Confusion for financial providers about what is expected of them, and confusion for consumers • Individual industry schemes have also adopted and consumer advisers about what redress is various practices to bolster public perception of available and how it can be enforced their independence, such as appointing a retired judge as ombud and/or as chair of the board/ Areas for potential improvement include council. ensuring the following: • They were all recognized by the FSOS Council • A consistent and sufficiently comprehensive as having independently appointed ombuds, definition of what constitutes a complaint—to be free to act independently in resolving cases, and used by ombud schemes, financial providers, and sufficient resources to function efficiently and in regulators—that confirms that an oral expression a timely manner. of dissatisfaction suffices and that a complaint does not have to be in writing Nevertheless, there are some material inconsistencies (and some deficiencies) in the • Consistent requirements for financial providers mechanisms to underpin the independence of (set by the regulator) about how providers should the ombud schemes and ombuds. Some of the resolve complaints fairly, give information about current practices of the ombud schemes may go the ombud system, and give a clear written final some way to mitigate these deficiencies, but we decision on complaints within a specified time do not think that relying on good practice is a substitute for ensuring that proper protections • Consistent and sufficient redress powers for all of are built into the formal governance frameworks. the ombuds in the financial ombud system (and, if Moreover, the statutory schemes lack an differing maximum limits are deemed necessary, independent governing body to appoint the there should be a logical link to specific categories ombuds and help protect their independence. of product readily understandable by consumers) 16. ASSESSMENT SUMMARY | 151 Areas for potential improvement include Accessibility280 incorporation of formal requirements that The visibility and accessibility of the ombud ensure the following: system are less than they would be if there were • That the ombud is combined resources using a standard approach. - Appointed by, and accountable to, a governing • Coordination could improve things substantially, body that is itself demonstrably independent, especially in getting information to those without internet access. The amount of help available to - Is chosen by a transparent and public process, complainants who are vulnerable, disadvantaged, so as to instill public confidence, and or disabled is variable, as is the degree of outreach to more rural areas. - Appointed on terms that secure their independence from those who appointed • There are striking differences in the numbers of them, the financial industry, consumer bodies, complaints received from different provinces, financial regulators, and politicians; and the multiplicity of official languages presents challenges for all agencies that deal with the • That the governing body’s members public, including the ombud system. - Are chosen in a balanced and independent way • All of the ombud schemes (apart from the JSE that instills public confidence—and not chosen Ombud) are free to consumers, but there are by industry members, significant differences in how complaints can - Are appointed on terms that secure their be submitted and whether a signature or written independence from those who appointed confirmation is required. them, the financial industry, consumer bodies, • A single point of entry would help, but only once financial regulators, and politicians, and the complexity and inconsistencies of the existing - Include an independent chair and exclude system have been resolved. serving politicians and regulators; Areas for potential improvement include • That the independent governing body has power to ensuring the following: - Approve the budget, and • That sufficient personnel and financial resources are allocated, in order to improve the visibility - Make changes to the scope and powers of and accessibility of the ombud system the ombud scheme, subject to any regulatory approvals; • That those resources are combined behind a common brand strategy and policies in order to • That, in exercising its powers, the independent deliver information effectively to all those who governing body will at all times have regard to the need it (directly or through partner organizations) importance of • That one or more combined points of entry - Preserving the independence, integrity, and replace all the separate points, but only once the fairness of the decision-making process, and complexity and inconsistencies of the existing system have been resolved - Ensuring that the scheme is appropriately resourced to carry out its objectives in a timely • That it is made as simple and informal as possible and efficient manner; and for consumers to submit a complaint to the ombud system by any reasonable channel and without • That the ombud scheme has, and controls, its own requiring a formal signature resources and funding. 152 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • That common approaches are developed (and staff taking into account the law, regulatory standards, trained) to assist consumers facing difficulties industry codes, and industry good practice. because of language, vulnerability, disadvantage or disability • The ombud system should have consistent processes and procedures for applying the • That the disproportionate inflow of complaints principles of fairness in resolving complaints, from different provinces is investigated and any including the following: appropriate action is taken - Making the process easy to use and efficient for • That the ombud system is not expected to carry consumers and financial providers the responsibility of providing general financial education for consumers but continues to - Exchange of information and documents cooperate with the financial-education activities - Use of confidential information; of public agencies - Approach to dismissal of complaints based on Fairness281 no merit or no reasonable prospects of success The existing legislative framework, governance, - Use of provisional decisions before a final and rules of the ombud schemes and their binding decision on more complex matters complaint-handling processes are generally consistent with international good practices - Ombuds regularly making final decisions on designed to ensure the fair and equitable cases and publishing them (with the complainant resolution of complaints. anonymized) • The ombud schemes provide for a fair complaint- • Where relevant facts of a case are disputed, the handling process in their rules, which (excepting ombud system should decide (in the light of the the JSE Ombud) also spell out fairness and equity available evidence) what is most likely to have as the basis of their decision-making. happened, without imposing an onus of proof on the complainant. • But there are significant differences in rules, terminology, complaint-handling processes, and • Details of complaint-uphold rates should be appeal procedures among the ombud schemes. published, and this information should help to inform a quality-assurance program and periodic • This lack of consistency results in an ombud independent reviews. system that is - The ombud system should have a single - Confusing for complainants; dedicated appeal mechanism of its own. This - Complex and costly for financial providers; should have an informal procedure (so as not to disadvantage consumers). - Potentially inconsistent in how it applies due process and equitable principles; and - It should have specialist knowledge of the work of financial ombuds as well as of financial - Less effective in promoting common standards services and credit. of fair dealing. - Access should be limited to cases with general Areas for potential improvement include the or systemic implications. following: - The appeal body should have discretion, where • The ombud system should have a consistent set it considers this is in the interest of both parties, of rules and criteria for resolving complaints in to reach its own decision on the merits. a manner that is fair in all the circumstances, 16. ASSESSMENT SUMMARY | 153 Efficiency282 • The multiplicity of schemes and their different approaches to reporting performance makes it The existing arrangements for each ombud difficult to assess the costs and efficiency of the scheme cover many of the features of international ombud schemes and the ombud system. good practice designed to ensure that the financial ombud system provides a consistently • The large number of smaller schemes, each with good quality of service and value for money. its own IT systems, case management, and other organizational support, causes duplication of effort • The ombud schemes all have well-developed and and increased costs. This is particularly relevant documented complaint-handling processes with a for investment in IT systems, which underpin focus on the timely resolution of complaints. the efficient complaint-handling processes of a • Each ombud scheme prepares an annual budget modern ombud scheme. based on expected volumes and types of • The JSE Ombud model differs significantly complaints and operational plans for the year. from the other ombud schemes, and its process • The ombud schemes have recruitment, human and practices do not conform to the usual resources, skill-development, and training plans model of an ombud of the type contemplated designed to ensure that the scheme has the by the international good practices used in this expertise and qualified staff. assessment. It is more akin to a form of a private arbitration established under the JSE rules on a • All of the ombud schemes have internal quality- case-by-case basis for a specific dispute when the assurance activities built into their complaint- need arises. handling processes. Areas for potential improvement include the • Several of the ombud schemes report their following: performance standards and results of their stakeholder surveys and have prominent • There should be a consistent set of rules and information on how to make a service complaint. processes for handling complaints, including the following: • One ombud scheme (the LTI Ombud) includes a report from an external reviewer in its annual - Transfer of complaints sent to the incorrect report and conducts periodic independent reviews ombud scheme of the scheme every three to five years. - Transfer/referral process for premature However, there are gaps for some of the ombud complaints across all sectors schemes and challenges for the ombud system as - Time frames for responses from financial a whole. providers across the ombud system • Several of the ombud schemes said that they have - Use of early triage and streaming of disputes staffing challenges that make meeting time and quality standards a challenge. - Engagement and interaction with the parties • One ombud scheme has highlighted the challenges - Information exchange they face in getting a timely response from the parties to a complaint and that this lengthens the - Use of provisional decisions time they take to resolve complaints. - Decision-making - Appeals 154 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • A common case-handling and document- • A similar dialogue, backed up by a memorandum management IT infrastructure should be created. of understanding, were established between the Banking Ombud and the NCR; • A well-structured quality-assurance program should be developed—including review of a • The memorandums of understanding created a percentage of closed cases—with clear quality, standardized approach for mutual exchange of time, and fairness criteria linked to process and information, with feedback on actions taken in quality improvements. response; and • There should be a published service charter • The memorandums were published by the including details of how a service complaint regulators and the schemes, so that the nature and can be made, the process for doing so, and who extent of the information exchange is publicly handles the service complaint. understood. • Annual reports should include reporting against Areas for potential improvement include the common service and performance standards. following: • Any ombud scheme should commission an • Annual reports with comparable contents, independent review of its operations (comparing including the following: them against international good practice) every three to five years and publish the report. - Data on performance of the ombud scheme - Socioeconomic information about users Openness283 The ombud schemes are generally open to public - Sectoral and system-wide issues in the market scrutiny about the work that they have done, but that adversely affect outcomes for consumers differences in content and terminology hamper • Prompter reporting of some key issues and data284 system-wide comparisons and conclusions. (perhaps quarterly) • These differences make it difficult to compare the • Greater public engagement in developing future performance of the different parts of the ombud plans and processes system and to analyze its effectiveness as a whole. • Comparable and documented arrangements for • They also make it more difficult to reduce the information sharing with the FSCA and NCR, causes of complaints and improve consumer including the following: outcomes through identification of trends across the financial system, including new and emerging - Mutual exchange of information issues. - Feedback on actions taken in response • Although the existing ombud schemes are generally open about the work that they have - Publication of the extent of that information done, they are less open publicly about their sharing proposed plans for future changes. There is dialogue between the ombud schemes and the FSCA, and between the Credit Ombud and the NCR, about issues identified by the ombud schemes in the course of their work, and that dialogue is to be covered by memorandums of understanding. It would be helpful if 16. ASSESSMENT SUMMARY | 155 Ombud Council285 - Authorize a recognized industry ombud to deal with a complaint against a financial provider that The powers of the Ombud Council could help is already within its jurisdiction, even if part or implement and oversee reforms resulting from all of the complaint falls within the jurisdiction this report, but there are a number of significant of a statutory ombud scheme concerns about its constitution and powers. - Designate a recognized industry ombud as the • The title “Chief Ombud” is likely to create backup ombud scheme in a particular sector confusion over the true role and responsibilities (or sectors) to exercise jurisdiction over any of the chief executive of the Ombud Council financial provider that has not joined an industry and should be replaced by another title more scheme in that sector (or those sectors) consistent with the role, such as Chief Executive or Director-General. • There should be explicit adverse consequences (that can be implemented by the Ombud Council • The Ombud Council is not sufficiently independent or the FSCA) if a financial institution does not to act as an intrusive regulator of independent join relevant ombud schemes or, having joined, ombud schemes and still less to become the does not comply with their decisions. governing body of a consolidated system. • Properly functioning centers that give effective • Some of the Ombud Council’s intrusive/coercive access to all of the ombud schemes will be powers over ombud schemes may damage the difficult to achieve and have limited value unless perceived independence of the ombud schemes. and until the complexity and inconsistencies of • Those of the Ombud Council’s functions and the existing system have been resolved, and a powers designed to encourage standardization and consolidated ombud system will be better placed cooperation, while appropriate for the currently to provide such cross-sector access points as part fragmented system, would be unnecessary (and of an integrated complaint-handling process. cease to be cost effective) if there were a significant consolidation of the ombud system. • To enable consolidation of the system and the creation of clear jurisdictional boundaries, the Ombud Council should have power (where appropriate) to do the following: 156 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 16. ASSESSMENT SUMMARY | 157 Detailed Recommendations 17 RECOMMENDATIONS FOR REFORM This chapter sets our recommendations for reform of the financial ombud system and for ensuring that there is a smoothly managed transition. 17.1 OPTIONS FOR REFORM Stakeholder Views Most stakeholders acknowledge the need for Proposed Approach reform, but there is little consensus on the precise Our recommendations take into account not only nature and extent of the reforms required. There the principles of good ombud practice but also are legitimate concerns that the constitutional, legal, cultural, economic, and • Achanged system might involve less independence, other circumstances in South Africa. more bureaucracy, less professionalism and • We have been informed by international good expertise, and loss of stakeholder support; practice and by how some things have worked (or • The performance of even a well-designed system not) in other countries, but we have not sought depends on the appointment of the right people on to transplant one existing model from elsewhere the governance bodies and as its leadership; and in the world to South Africa. We have devised what we believe will work best in the local • There is a significant risk of losing current circumstances. expertise and operating capabilities during the transition to a reformed system. • We are not starting with a blank sheet of paper; there is already a system in place. So we have Successfully addressing these concerns will be placed a high priority on the need to keep the critical to gaining general stakeholder support for ombud system operational, and the need to retain any reforms, and we have taken them into account the stakeholder support that underpins it, through in our proposals for reform and transition. the transition to a reformed system. Potential Models • We have sought to avoid the risks of either a “big bang” or an incremental approach that are We do not recommend adoption of any of sometimes presented as alternatives. Both, in their the three models mentioned in the NT’s 2017 own ways, risk disrupting the current operation Consultation Document. of the system, loss of expertise, and a failure to • These were the following: implement reforms properly. - Model 1: A hybrid model building on current • Rather, we propose early action to set clear FSR Act provisions directions for the reforms and put in place a clear independent governance framework to manage a - Model 2: A centralized model, establishing a staged implementation plan with a clear timetable, single statutory ombud scheme to reduce uncertainty for the current schemes and their staffs and manage the transition risks. - Model 3: Industry ombuds with strong oversight by the Ombud Council 17. RECOMMENDATIONS FOR REFORM | 159 • We have carefully reviewed all three models • Some stakeholders have mentioned that the in the light of the assessment criteria and the United Kingdom has a statutory financial ombud. strengths and weaknesses of the current ombud But the UK arrangements for statutory bodies are system. While each model has some benefits, very different from those in South Africa. The the best of which we have sought to retain in independence of the UK Financial Ombudsman our recommendations, they all have significant Service is underpinned at several levels in the disadvantages. This is confirmed by the following ways: divergent stakeholder comments we received on the three models. - A minister appoints the board of the Financial Conduct Authority, but, like all such ministerial • None of the three models addresses all the appointments, the process is overseen by the weaknesses in the current ombud system that Commissioner for Public Appointments.287 we have identified, including key material deficiencies relating to the nature of involvement - The Financial Conduct Authority appoints the by both industry and government, jurisdictional board of the Financial Ombudsman Service and coverage, complexity, inconsistency in rules and is required by law to do so on terms that secure processes, transparency, and accessibility. the board members’ independence from the authority in the operation of the service.288 Models 1 and 3 would retain multiple schemes with an overlay of more consistent standards and - The board of the Financial Ombudsman Service rules, along with an enhanced single entry point that appoints the ombudsmen and is required by law would direct complainants to one or more existing to do so on terms that are consistent with the schemes. We do not consider this to be a viable ombuds’ independence.289 end point. The shared call center established by the • Stakeholders in South Africa consider that existing schemes failed in practice. International statutory bodies are bureaucratic, inflexible, experience is that getting real consistency across and more expensive. The 2017 Consultation separate schemes is unlikely to be possible, and that Document itself conceded that statutory ombuds just adding a single entry point on top of the current show significantly higher costs, explained to multiple-scheme structure will not be effective.286 some extent by the statutory inflexibility afforded Model 2 would create a single statutory scheme. to running these schemes, especially governance While we consider consolidation as an important requirements imposed by the PFM Act. element of the recommended reforms, we do not • It is essential that there is a smooth transition support consolidation for its own sake through a from the existing system to the new one, in order single statutory scheme. to ensure that complaints from consumers are • While a single statutory scheme might (at first still being handled throughout the change and sight) appear to be a straightforward policy option, to preserve existing knowledge, expertise, and it would not be consistent with international good stakeholder goodwill. Even in countries where a practice, would lack critical stakeholder support, fully statutory ombud was established (such as and would pose material risks for a smooth the United Kingdom), a smooth transition would transition to a new reformed ombud system have been impossible without the active support of stakeholders (including the governing bodies of • The framework for statutory ombuds in South the existing ombud schemes). Africa (with no independent governing body and appointment of the ombud by a politician) • So this report favors a non-statutory model lacks independence, and, in view of past events, (overseen by the existing statutory Ombud stakeholders in South Africa are very cautious Council). Forcing existing schemes into a fully about appointments made by politicians. statutory ombud would not secure the cooperation 160 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC of essential stakeholders. Without stakeholder in addition to some standardization of the interface cooperation, there is a significant risk of a worse between financial providers and the ombud system, outcome, because the handling of cases would we recommend the following: not proceed smoothly through the transition, and knowledge, expertise, and goodwill would be lost. • A new National Financial Ombud (NFO), independent of both industry and government, Negotiations among Industry Schemes should cover the whole of the financial sector (including credit)—apart from retirement funds— Recent negotiations between four of the industry and absorb the work of the Banking, Credit, LTI, schemes (the Banking, Credit, LTI, and STI STI, JSE, and FAIS Ombuds. Ombuds) about moving toward a merger between 2021 and 2024 are welcome but do not • The consolidation should be managed by provide a sufficient platform for reform. the NFO’s governing body, which should be established at the earliest possible opportunity, • Although these discussions can help identify so that it can oversee the process and make any issues and potential solutions on a range of necessary design decisions. practical system and process issues, • The statutory PFA, reformed and renamed - They will not be able to resolve the issues raised “Retirement Funds Ombud,” should continue by the cross-cutting statutory jurisdiction of the to have jurisdiction over retirement funds but FAIS Ombud; should add jurisdiction over advice/intermediary - They envisage a gradualist approach that will services concerning retirement funds where it is not tackle some of the fundamental issues at the provided by any person or entity that is otherwise outset in order to provide a secure platform for within its jurisdiction. reform; and • The statutory provisions relating to the Ombud - We do not consider that they provide a secure Council should be modified in order to increase foundation for extending the ombud system to its independence, rename its chief executive, and all authorized providers of financial services modify its powers in order to facilitate (and then (including credit). adapt to) the new structure that we recommend. • As explained later, we consider it essential National Financial Ombud: that a new independent governance framework • The NFO should be demonstrably independent— should be established at the outset, to manage not only from the financial industry but also from consolidation, with the ability to decide the end the government. It should have the governance point and how to get there. This is not a role for arrangements set out in our recommendations and the Ombud Council, though its approval of some preferably take the corporate form of a nonprofit aspects will be required in its continuing role as company without members.290 oversight regulator. • The NFO should not be a statutory body. This 17.2 A NEW MODEL will make it easier to undertake the transition, retain the flexibility to adapt to future changing circumstances and products, retain the support of Outline existing stakeholders, and avoid bureaucracy. We recommend a new model that builds on the strengths of the existing ombud system while • The NFO will need to obtain recognition from the addressing the complexity and other weaknesses Ombud Council. As explained later, it will require that we have identified. The full details are set out some statutory underpinning (through extending in the recommendations in section 17.3. Broadly, the powers of the Ombud Council) in order to ensure that its coverage is comprehensive. 17. RECOMMENDATIONS FOR REFORM | 161 • The NFO should incorporate the work of all the the COFI Bill does not come about—the “Pension industry ombud schemes (the Banking, Credit, Funds Ombud.” LTI, STI, and JSE Ombuds), plus that of the statutory FAIS Ombud. Its jurisdiction should - The name change will make its role clearer to extend to cover all financial providers authorized consumers and also facilitate working jointly by the PA/FSCA and NCR. with the NFO to enhance the outreach and accessibility of the ombud system. • The new NFO would handle all complaints that seek redress from providers of financial - For the same reason, there should be significant services and credit, to enable the NCR and harmonization between the processes, powers, FSCA to focus on dealing with enforcement, and terminology used by the RFO and NFO. systemic sector-wide issues, and broader • The RFO’s jurisdiction should be clarified. financial-literacy efforts. - It should continue to have jurisdiction over Retirement Funds Ombud: retirement funds but should add jurisdiction • We do not recommend incorporating the work of over advice/intermediary services concerning the PFA into the NFO at this stage. retirement funds where that is provided by any person or entity that is otherwise within its - Retaining a separate scheme for retirement funds jurisdiction. at this stage will avoid adding further complexity to what will already be a complex transition. - This reasonably clear jurisdictional boundary This can be reviewed after the NFO has been with the new NFO should not prevent the NFO fully implemented and has settled down. arranging with the RFO for the NFO to deal with the whole of a complaint that includes advice - The nature of the PFA’s work is somewhat or intermediary services relating to a retirement different. Its jurisdiction, wide range of parties fund where that is part of a wider complaint (both regulated and unregulated entities), and against a provider that is otherwise within the types of disputes differ from other financial- NFO’s jurisdiction. sector ombud schemes. Ombud Council: - There is no international best practice as a guide in this area; some pension ombud • The statutory provisions relating to the Ombud schemes remain separate (for example, the Council should be modified in order to increase United Kingdom), while others have been part its independence, rename its chief executive, and of a broader ombud consolidation (for example, modify its powers in order to facilitate (and then Australia). adapt to) the new structure that we recommend. - The major issue in the pension-funds sector is • This includes extending its powers (as detailed employers not paying over contributions. This in our recommendations) so that it can authorize is primarily an issue for the FSCA to address the NFO to handle complaints about advice/ and will not be solved by changing the ombud intermediary services, give the NFO automatic system. We think this needs to be resolved before jurisdiction, and make NFO’s ombud final consolidation with other ombuds is considered. decisions enforceable in the same way as a court judgment. • Pending a future consideration of its relationship with the NFO, the PFA’s governance should • It also includes reviewing its statutory powers be enhanced to underpin its independence. with a view to repealing any intrusive or coercive Contingent on that being accepted, its name should powers that are no longer appropriate or cost be changed to the “Retirement Funds Ombud” effective in the light of the reform of the ombud or—if the change in terminology envisaged by system arising from our recommendations. 162 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Transition - Stage 1 (within six months): Choose and establish the NFO board—with power to decide International experience shows that a carefully on the new constitution, single rulebook, funding planned and managed transition is crucial model, operational systems, and transitional to achieving the benefits of reform without plans. Once this has been done, seek approval disrupting the work of handling complaints. for the NFO from the Ombud Council. • The reform process is inherently complex. It - Stage 2 (within 12 months): Progressively is important to retain the expertise of existing transfer staff and assets to the NFO. As in other personnel and to keep broad stakeholder support countries that have undergone a similar process, for the work of the ombuds. this may involve ombuds and staff holding • It will help to minimize uncertainty if as much as dual appointments for a period so the NFO can possible can be done early—with cooperation from continue the work of the current schemes until the ombud schemes, under existing legislation, the formal handover.291 and with the support of the Ombud Council. - Stage 3 (within two years): Formal handover to • Cooperation would be facilitated if the South the NFO, which would handle all new complaints African authorities were to share this report in under the NFO rules, process, and powers. full with the relevant stakeholders. The WBG • Additional clarification on the implementation of may be able to provide further assistance with the the proposed new ombud system—including the transition. order of events and the many steps that do not • But some changes, primarily affecting the statutory require legislation—is set out in appendix G to ombud schemes and the Ombud Council, will this report. ultimately require legislative changes (possibly • The existing ombud schemes have been living in through the forthcoming COFI Bill). the shadow of proposed reforms for a long time. The transition to the NFO will be best managed To their credit, they have continued to focus on by establishing its governing body at the earliest resolving complaints and improving the service possible opportunity, so that it can oversee the they provide. But early decisions and action on consolidation process and make any necessary reform are now needed, to avoid creating further design decisions. uncertainty and destabilizing the system, which would damage the effectiveness of the system. • There will need to be a mechanism for speedy appointment of the initial NFO board while 17.3 RECOMMENDATIONS ensuring that broad stakeholder support is retained. We recommend that this be done by an The following recommendations are interrelated electoral college comprising one member each and should be considered as a whole. Otherwise, from the FSCA, NCR, Ombud Council, and the the reformed system would be unbalanced. We have four main industry schemes. (The JSE’s role in the not recommended any interim set of reforms. current ombud system is minimal.) • The reforms will work to create a system that • Further detailed work by the NFO board on the works across sectors only if there are clear operational details of transition will be required decisions at the outset about what the end point once a formal policy decision is made on the main looks like. reform proposals. However, we contemplate that from the time a formal policy decision is made, • In part, the piecemeal reforms of the past have transition will involve the following three stages resulted in the complexity and lack of coherence (with the following indicative time frames): of the current system described in this report. 17. RECOMMENDATIONS FOR REFORM | 163 • Once a policy decision on the end point of a delegated powers) through the COFI Bill or some reformed ombud system is made, the transition other legislative vehicle: can take place in the phases described above, with earlier progress on those aspects that do not • Changes of general application: require statutory changes.  A1  A2  A3  D6 In these recommendations: • Changes relating to the FAIS Ombud:  B1  B2  B3  B6  C1 • Part (a) is of general application.  C2 • Part (b) applies to the NFO. • Changes relating to the PFA: • Part (c) applies to the RFO.  C1  C2  C3  C4  C5  C6  C7  C10  C12  D2 • Part (d) applies to both the NFO and RFO.  D4  D5  D7  D8  D10  D11  D12  D15 • Part (e) applies to the Ombud Council. • Changes relating to the Ombud Council: The following recommendations envisage  E1  E2  E3  E4  E5 (B2, B3) legislative changes (directly or by creation of  E6  E7  E8 General Interaction and Powers Recommendation A1: General: Standard Definition of Complaint • There should be a consistent definition of what constitutes a complaint—to be used by ombud schemes, financial providers, and regulators. • The definition should include an oral expression of dissatisfaction and not require a complaint to be in writing. • It should be made clear that a complaint can be made in any of South Africa’s 11 official languages. Note on recommendation A1: This will assist understanding and ensure consistency. It will also facilitate accessibility by ensuring that complaints to financial providers do not have to be in writing and can be referred to the NFO through any communication channel, including by phone. Recommendation A2: General: Requirements for Financial Providers There should be consistent requirements for financial providers (set and enforced by legislation or the relevant regulators) about how providers should • Resolve complaints fairly; • Give a clear written final decision on complaints within a specified maximum time; and • Give complainants information about the ombud system. Recommendation A3: General: Consequences for Financial Providers There should be explicit adverse consequences (that can be implemented by the Ombud Council or the FSCA) if financial institutions (as defined in the Financial Sector Regulation Act 9 of 2017) fail to • Join relevant ombud schemes; • Cooperate with the ombud schemes; or • Comply with ombud scheme decisions. 164 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC NFO New National Financial Ombud Scheme Recommendation B1: National Financial Ombud A new NFO, independent of both industry and government, should be established to cover the whole of the financial sector (including credit)—apart from retirement funds—and absorb the work of the Banking, Credit, LTI, STI, JSE, and FAIS Ombuds. Scope Recommendation B2: NFO: Providers Covered The NFO’s jurisdiction should cover all financial providers that • Are authorized by the PA or FSCA to provide financial services, or authorized by the NCR to provide credit services; or • Were so authorized by the PA, FSCA, or NCR (or their predecessors) at the time of the act/omission complained about. Notes on recommendation B2: • The FSR Act already requires financial institutions (as defined) to join an ombud scheme in the sector(s) where they operate, but this involves the ombud scheme administering a membership scheme—and leaves a gap in jurisdiction over those financial institutions that fail to join. • So it would be better if the NFO’s jurisdiction were automatic. We recommend that legislation should give automatic jurisdiction to any non-statutory ombud scheme (for example, the NFO) identified for the purpose by the statutory Ombud Council. • Before exercising that power, the Ombud Council would no doubt satisfy itself that the NFO’s funding arrangements were fair and appropriate, particularly in relation to small providers serving a social or community purpose. • In the credit sector, the NFO would become the first port of call for complainants who are seeking redress, leaving the NCR (as a regulator) to focus on situations where complainants are seeking for the regulator to discipline the provider. • In the JSE, the NFO would replace the ombud stage of the existing JSE process—without preventing JSE’s Market Regulation Division from continuing to look at complaints before they come to the NFO. Recommendation B3: NFO: Products/Services Covered • The NFO’s jurisdiction should cover complaints about acts or omissions in the provision (or ancillary to the provision) of regulated financial services (including regulated credit services)—with the exception of complaints about retirement funds. • A financial provider should be liable for the acts/omissions of its agents, and the acts/omissions of any predecessor provider that it took over (or whose customer relationships it acquired). Notes on recommendation B3: • By “regulated financial services (including regulated credit services),” we mean – Any financial services that are currently authorized, licensed, regulated, or registered under any existing financial-sector legislation; – Any credit services that are currently authorized, licensed, regulated, or registered under the NC Act; and – Any future extension of these (whether under the COFI Bill or other legislation). • Current legislation gives the FAIS Ombud statutory jurisdiction over advice/intermediary services, even for financial providers covered by another ombud scheme, and prohibits industry ombuds from dealing with advice/intermediary services aspects of complaints unless the FAIS Ombud declines to deal with the complaint. • We recommend that, until the FAIS Ombud is wound up, the legislation should enable the Ombud Council to authorize a recognized industry ombud to deal with a complaint against a financial provider that is already within its jurisdiction, even if part or all of the complaint falls within the jurisdiction of the FAIS Ombud. • Pending enactment of the legislation mentioned in the previous note, the NFO could be enabled to deal with all aspects of a complaint (including advice/intermediary services) if the FAIS Ombud routinely declined to deal with such complaints and/or the FAIS Ombud personally were appointed also as an ombud in the NFO.292 17. RECOMMENDATIONS FOR REFORM | 165 • The exclusion of retirement funds should not prevent the NFO arranging with the RFO for the NFO to deal with the whole of a complaint that includes advice or intermediary services relating to a retirement fund where that is part of a wider complaint against a provider that is otherwise within the NFO’s jurisdiction. Recommendation B4: NFO: Complainants Covered—Consumers and Businesses • The NFO should accept complaints from consumers. • The NFO board, after publicly consulting stakeholders, should specify whether the NFO will accept complaints from all businesses or only businesses up to a specified size. • The same eligibility for businesses should apply across all financial sectors. If it is to be businesses of a specified size, the test should Be a clear and simple one (for example, turnover or number of staff); –­ ­ – Apply equally to sole traders, partnerships, incorporated entities, and unincorporated entities; and – Apply at the date the complaint is referred to the NFO. ­ Notes on recommendation B4: • All of the existing ombud schemes accept complaints from consumers. • Only one of them distinguishes between incorporated and unincorporated businesses. • Three have (differing) turnover limits for businesses: R 1 million, R 8 million, and R 10 million. Recommendation B5: NFO: Complainants Covered—Non-Customers • The NFO should accept complaints not only from customers but also from non-customers likely to be adversely affected by acts/omissions of a financial provider. • The NFO board, after public consultation with stakeholders, should settle either – A test to be applied by an ombud; or ­ ­ – A list of non-customers eligible to complain. Notes on recommendation B5: • If the NFO board decides to adopt a test, it might be along the lines of “a complainant whose relationship with the financial provider is (in the opinion of an ombud) sufficiently close to give the complainant appropriate standing to refer a complaint to the NFO.” • Alternatively, if the NFO board decides to adopt a list, we encourage it to include the following: ­ – Prospective customers, for complaints about the financial provider’s wrongful refusal to provide a service (perhaps involving unlawful discrimination) – Users of cash machines (ATMs), payment services, and holders of electronic money, provided by the financial provider – A guarantor or surety293 for a loan (or credit) that was provided to a customer by the financial provider ­ – A beneficiary under an insurance policy taken out by someone else (such as a policy taken out by an employer to benefit its employees or by someone to benefit their family/dependents) – A beneficial owner under a collective investment scheme that is managed by the financial provider ­ – A beneficiary under a pension taken out by someone else (such as a pension taken out by an employer or by someone for ­ their own benefit and the benefit of their family/dependents) ­ – Someone whose credit history has been (incorrectly) recorded at a credit bureau (so that their ability to borrow has been adversely affected) – Someone from whom a debt is being (incorrectly) claimed (such as where the lender has wrongly confused them with the actual debtor) 166 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Interaction and Powers Recommendation B6: NFO: Maximum Compensation Limits • The minister should speedily review the maximum compensation limit for the FAIS Ombud, which was set in 2004 at R 800,000. Indexed to the South African Consumer Prices Index, that would be equivalent to well in excess of R 2 million in 2020. • By the time of the formal handover to the NFO (indicative timescale two years), the NFO board, after publicly consulting stakeholders, should settle more generally ­ – Whether to set a maximum that can be awarded for loss; – Whether to set a maximum that can be awarded for distress/inconvenience; and ­ – If there are to be maximums, what they should be. ­ • If the NFO board considers there should be different provisions for loss in different sectors, for clarity and simplicity There should be the smallest possible number of alternatives; and –­ – They should be clearly linked to types of product or provider in a way that will be clear and logical to complainants. ­ • If the NFO board considers there should be a limit for distress/inconvenience, for clarity and simplicity, there should be one limit across all sectors. • The NFO board should review the adequacy of any maximum limit (in the light of inflation and any other relevant factors) at least every two years. Notes on recommendation B6: • Currently, there is a wide range. At one extreme, the FAIS Ombud cannot award more than R 800,000 (about $53,333). At the other extreme, the LTI Ombud has no limit on awards for loss, though it has a limit of R 50,000 (about $3,333) for distress/ inconvenience. • This means, for example, that a complaint about loss caused by a long-term insurer’s failure to pay out on a long-term insurance policy that it advised the complainant to take out is subject to – A limit of R 800,000 if the failure to pay out was because the complainant was advised (by the insurer itself) to take out the ­ wrong policy; but ­ – No limit if the failure to pay out was because the insurer did not comply with the terms of the policy itself. • Many stakeholders raised the fact that the limit applicable to the FAIS Ombud is notably low. As mentioned above, it would have increased to more than R 2 million if it had kept pace with the Consumer Prices Index. So that should be tackled at the earliest possible date. • The other limits were not an issue raised by stakeholders, so we propose a longer timescale for the complex issue of harmonizing them—though they will need to be harmonized in a way that is clear and makes sense to consumers. • If the NFO board does fix a maximum, they may consider providing (as in some other countries, such as the United Kingdom) for the possibility of the ombud making a nonbinding recommendation for any amount in excess of the limit. • We do not consider that the NFO should exclude cases where the loss could exceed any maximum limit (as the Banking Ombud currently does), but it should make clear to the complainant at the outset any limit on what the ombud can award. Independence Recommendation B7: NFO: Speedy Appointment of Governing Body The governing body of the NFO (the NFO board) should be established at the earliest possible opportunity, so that it can oversee the consolidation process and make any necessary design decisions. Recommendation B8: NFO: Corporate Form The NFO should be a non-statutory corporate body, preferably established in the form of a not-for-profit company without members. 17. RECOMMENDATIONS FOR REFORM | 167 Note on recommendation B8: • The Consumer Goods and Services Ombud is an example of a not-for-profit company without members. Recommendation B9: NFO: Functions of NFO Board • The functions of the NFO board should include the following: – Appointing the NFO chief ombud and other ombuds ­ ­ – Safeguarding the ombuds’ independence – Ensuring that the NFO has adequate resources to handle its work ­ – Edopting the budget and a funding structure ­ ­ – Amending the NFO’s rules and scope (subject to approval by the Ombud Council) – Overseeing the efficiency and effectiveness of the NFO ­ – Advising on the strategic direction of the NFO ­ – Ensuring effective relationships with stakeholders ­ • The NFO board should be – Prohibited from being involved in individual complaints against financial providers; and ­ – Required to delegate executive management of the NFO (including staff recruitment) to its chief ombud. ­ Note on recommendation B9: • We have included “ensuring effective relationships with stakeholders” in the NFO board’s functions in order to ensure retention of existing good relationships. • The best ways of doing this are likely to change over time, so we do not recommend building specific liaison arrangements into the NFO rules. Recommendation B10: NFO: Funding • The NFO should be free for consumers and directly funded by the financial industry. • The NFO board should adopt a funding arrangement that is sufficiently flexible to – Accommodate fluctuations in volumes; – Reflect the size and volume of complaints by industry participants; and – Avoid overburdening small financial providers. Notes on recommendation B10: • As a non-statutory body, the NFO will be outside the scope of the PFM Act. Its funding will be raised under its rules, developed by the NFO board and approved by the Ombud Council. • The funding model should be designed by the NFO board, in consultation with the relevant stakeholders, and not by the South African authorities. • As part of the approval process, the NFO will need to satisfy the Ombud Council that the funding model is fair and provides sufficient funds. • Levies: Funding could come through levies payable by all financial providers within the jurisdiction of the scheme. This funding source – Gives the ombud scheme a reasonable degree of certainty about the amount of funding it will receive each year; ­ Gives financial providers a degree of stability and predictability of the amount payable, enabling them to budget ahead; and –­ – Reflects the increased consumer confidence that all financial providers benefit from when consumers know there is ­ somewhere they can go if things go wrong. 168 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Case fees: Funding could come through case fees payable by financial providers against which complaints are referred to the ombud scheme. This funding source Creates a significant degree of uncertainty for the ombud scheme about the amount of funding it will receive; –­ ­ – Creates a degree of volatility in the amounts that will be payable by financial providers, making it more difficult for them to budget ahead; but – Reflects the workload that those financial providers generate for the ombud scheme irrespective of the outcome of cases. • Levies and case fees: Some ombud schemes balance these factors by – Charging all financial providers a combination of levies and case fees (for example, raising half their funding by levies and half by case fees); or – (To simplify levy collection) charging larger providers a levy plus (lower) case fees and smaller providers just a (larger) case fee. • For a fuller discussion of options, see chapter 5 of the 2018 Guide to Setting Up a Financial Services Ombudsman Scheme (available at http://networkfso.org/assets/guide-to-setting-up-a-financial-services-ombudsman-scheme_info-network_march2018.pdf Recommendation B11: NFO: Size of NFO Board The NFO board should have an odd number of members—not fewer than five and not more than nine—including the chair. Note on recommendation B11: • A board of nine is a bit large but may be needed for the initial board in the early years of the NFO, so as to provide the range of expertise necessary, including governance, finance, change management, human resources, dispute resolution, and business systems. • If so, the size of the board could be reduced below nine in the future. Recommendation B12: NFO: Appointment of Initial NFO Board Members The first members of the NFO board should be appointed by consensus among a non-statutory electoral college comprising one representative each from the following: • The FSCA • The NCR • The governing body of the Banking Ombud • The governing body of the Credit Ombud • The governing body of the LTI Ombud • The governing body of the STI Ombud • The Ombud Council Notes on recommendation B12: • The proposed process for selecting the first members of the NFO board is intended to facilitate its speedy creation. The electoral college is a single-use device. • Because of the crucial role to be played by the NFO board, it is important that its composition has the confidence of all concerned. • That is why the electoral college should choose all the members of the NFO board by consensus (rather than getting each member of the electoral college to appoint one). • It is essential that the members of the electoral college understand ombuds and their work, and that the electroral college is not so large that consensus is difficult to attain. 17. RECOMMENDATIONS FOR REFORM | 169 • As the FAIS Ombud does not have a governing body, the FSCA is included in order ensure that the interests of those covered by its jurisdiction are taken into account. • As the Credit Ombud covers only part of the credit sector, the NCR is included in order ensure that the interests of those covered by the whole of the credit sector are taken into account. • The Ombud Council is included because it will need to approve NFO’s rules. Such approval might be delayed if the Ombud Council had concerns about any NFO board member. • The electoral college will have finished its work before the NFO rules are produced for approval, so there should be no conflict for the Ombud Council. • The JSE Ombud does not have a governing body, and the JSE is not included because its Market Regulation Division will retain its role, and the number of ombud cases is minimal. • The Council of Debt Collectors should not be included. It has disciplinary powers but does not provide an ombud-like service, and including it would spur claims from other sectors. Recommendation B13: NFO: Appointment of Subsequent NFO Board Members Subsequent members of the NFO board should be appointed by the NFO board itself, by a transparent process, following a public advertisement. Notes on recommendation B13: • Our later recommendations on openness and external reviews should prevent the NFO board from becoming inward looking, even though it appoints its own future members. Recommendation B14: NFO: Expertise of NFO Board Collectively, the membership of the NFO board should provide a balance of understanding in respect of the following: • Effective corporate governance • ADR • Regulation of financial providers • The legitimate concerns of financial consumers • The legitimate concerns of the financial industry Note on recommendations B13 and B14: • There are additional recommendations affecting the NFO board in section (d): recommendations D7 and D8. Fairness Recommendation B15: NFO: Basis of Complaint Resolution The NFO should create a consistent set of rules and criteria (applicable across all sectors) for resolving complaints in a manner that is fair (equitable) in all the circumstances, taking into account the law, regulatory standards, industry codes, and industry good practice. Note on recommendation B15: • The financial ombud should take into account the law, any regulatory standards, any industry codes, and industry good practice, but, to reach a fair (equitable) outcome, the financial ombud should not be restricted to a strict application of these. For example: – The circumstances of the complaint may not be covered by a law/rule/code. – Any law/rules/code may not have kept up to date with new products or service channels. – A financial business’s standard-form contract may be oppressive and/or unconscionable. 170 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Recommendation B16: NFO: Processes and Procedures • The NFO should have consistent processes and procedures (applicable across all sectors) to apply the principles of fairness in resolving complaints, including the following: – Making the process easy to use and efficient for complainants and providers – The terminology used for the stages in the process and the staff involved in them – The level of informal engagement with the parties throughout the process – The time frames required for responses by the parties at each stage of the process – Triage and prioritization of complaints – Use of confidential information – Exchange of information and documents – Approach to dismissal of complaints with no merit or no reasonable prospects of success – Use of mediation – Use of nonbinding recommendations and provisional determinations – Use of provisional decisions before a final binding decision on more complex matters – Ombuds regularly making and publishing final decisions on cases – The information provided to the parties when a complaint is closed ­ How far parties can use information from the NFO in any subsequent legal proceedings –­ • Where relevant facts of a case are disputed, the ombud should decide (in the light of the available evidence) what is most likely to have happened, without imposing an onus of proof on the complainant. Recommendation B17: Appeals • The NFO board should establish a single independent appeal mechanism of its own with – An informal procedure (so as not to disadvantage consumers); and – Specialized knowledge of the work of financial ombuds, as well as of financial services and credit. • The availability of an appeal should depend on whether the proposed appellant first satisfies the appeal body that The case raises general or systemic implications for the financial sector or a significant part of it; and –­ – ­There is prima facie evidence that the NFO ombud misunderstood the law, misunderstood the scope of the NFO’s jurisdiction, or did not follow a fair process. • If the appeal is upheld, the appeal body should have discretion whether to – Remit the case to the NFO for redetermination; or ­ If it considers that it would benefit both parties, reach its own decision on the merits. –­ Notes on recommendation B17: • The NFO should have an internal appeal mechanism of its own, with an informal process and used to the specialized processes of an ombud—rather than the more formal statutory Financial Services Tribunal, whose role under the FSR Act covers a broad range of administrative decisions by different bodies. • A possible model for the NFO is a panel of three: a retired High Court judge as chair and retired judges or senior counsel as members. Applications for leave to appeal would be considered on the papers by the chair or another panel member designated by the chair. • Appeals could be considered by one, two, or all three members, as the chair decides is appropriate to the case in hand. They should be able to substitute their own decision on the merits, where that would be better for both parties than having to go through the rigmarole of reconsideration by an ombud. 17. RECOMMENDATIONS FOR REFORM | 171 RFO Reformed and Renamed Retirement Funds Ombud Scheme Recommendation C1: Retirement Funds Ombud The statutory PFA, reformed and renamed “Retirement Funds Ombud” (RFO), should continue to have jurisdiction over retirement funds but should add jurisdiction over advice/intermediary services concerning retirement funds provided by any person/entity that is otherwise within its jurisdiction. Scope Recommendation C2: RFO: Jurisdiction • The RFO’s jurisdiction should continue the statutory jurisdiction of the PFA under the Pension Funds Act of 1956 (as amended), plus advice and intermediary services in respect of retirement funds where that advice/intermediary service is provided by any person/entity that is otherwise within its jurisdiction. • It should cover complaints about acts or omissions by any person/entity that is within the RFO’s jurisdiction. • Such a person/entity should also be liable for the acts/omissions of its agents, and the acts/omissions of any predecessor that it took over (or whose customer relationships it acquired). Recommendation C3: RFO: Complainants Covered—Non-Customers The RFO should accept complaints not only from customers and members of retirement funds but also from non-customers/non- members likely to be adversely affected by acts/omissions of any person/entity that is within its jurisdiction, including the following: • Prospective customers, for complaints about the financial provider’s wrongful refusal to provide a service (for example, involving unlawful discrimination) • A beneficiary under a pension taken out by someone else (such as a pension taken out by an employer or by someone for their own benefit and the benefit of their family/dependents) Independence Recommendation C4: RFO: Governing Body The RFO should have its own governing body (the RFO board) to • Enhance and safeguard its independence; and • Appoint and support its ombuds. Recommendation C5: RFO: Functions of RFO Board • The functions of the RFO board should include the following: ­ Appointing the RFO chief ombud and other ombuds – ­ – Safeguarding the ombuds’ independence – Ensuring that the RFO has adequate resources to handle its work ­ – Adopting the budget and funding structure ­ ­ – Exercising the power to set processes and procedures (see section 30Y of the PF Act) – Overseeing the efficiency and effectiveness of the RFO ­ – Advising on the strategic direction of the RFO ­­ ­­ – Ensuring effective relationships with stakeholders • The RFO board should be – Prohibited from being involved in individual complaints against financial providers; and ­ – Required to delegate executive management of the RFO (including staff recruitment) to its chief ombud. 172 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Notes on recommendation C5: • The budget should be approved by the RFO board, but the amount required should be raised—as now—through a levy collected by the FSCA. • For the purposes of the PFM Act, the RFO ombud will be the accounting officer, but the RFO board will exercise the oversight currently provided by FSCA subcommittees. Recommendation C6: RFO: Size of RFO Board The RFO board should have an odd number of members—not fewer than five and not more than nine—including the chair. Note on recommendation C6: • A board of nine is a bit large; seven or five would be better, provided the membership covers the range of expertise needed in the early years of the RFO. Recommendation C7: RFO: Appointment of Initial RFO Board Members The first members of the RFO board should be appointed by consensus among an electoral college comprising the following: • One representative from the FSCA • One representative from the Ombud Council • The current Pension Funds Adjudicator Notes on recommendation C7: • The proposed process for selecting the first members of the RFO board is intended to facilitate its speedy creation. Recommendation C8: RFO: Appointment of Subsequent RFO Board Members Subsequent members of the RFO board should be appointed by the RFO board itself, by a transparent process, following a public advertisement. Notes on recommendation C8: • Our later recommendations on openness and external reviews should prevent the RFO board from becoming inward looking, even though it appoints its own future members. Recommendation C9: RFO: Expertise of RFO Board Collectively, the membership of the RFO board should provide a balance of understanding in respect of the following: • Effective corporate governance • ADR • Regulation of retirement funds • The legitimate concerns of retirement fund beneficiaries • The legitimate concerns of the financial industry, employers, and retirement funds Note on recommendations C8 and C9: • There are additional recommendations affecting the RFO board in section (d): recommendations D7 and D8. Fairness Recommendation C10: RFO: Basis of Complaint Resolution The RFO should create a set of criteria for resolving complaints in a manner that is fair in all the circumstances, taking into account the law, regulatory standards, industry codes, and industry good practice. 17. RECOMMENDATIONS FOR REFORM | 173 Recommendation C11: RFO: Processes and Procedures • The RFO should have processes and procedures to apply the principles of fairness in resolving complaints, including the following: – Making the process easy to use and efficient for complainants and providers – The terminology used for the stages in the process and the staff involved in them – The level of informal engagement with the parties throughout the process – The time frames required for responses by the parties at each stage of the process – Triage and prioritization of complaints ­ – Use of confidential information – Exchange of information and documents – Approach to dismissal of complaints with no merit or no reasonable prospects of success – Use of mediation – Use of nonbinding recommendations and provisional determinations – Use of provisional decisions before a final binding decision on more complex matters – Ombuds regularly making and publishing final decisions on cases ­ – The information provided to the parties when a complaint is closed ­ ­ – How far parties can use information from the RFO in any subsequent legal proceedings • Where relevant facts of a case are disputed, the ombud should decide (in the light of the available evidence) what is most likely to have happened, without imposing an onus of proof on the complainant. Recommendation C12: Appeals The availability of an appeal should depend on whether the proposed appellant first satisfies the Financial Services Tribunal that • The case raises general or systemic implications for the retirement-fund sector or a significant part of it; and • There is prima facie evidence that the RFO ombud misunderstood the law, misunderstood the scope of the RFO’s jurisdiction, or did not follow a fair process. Note to recommendation C12: • Reconsideration of cases from the RFO would continue to go to the tribunal for the time being, to avoid the complexity of establishing a separate appeal mechanism of its own for the RFO—remembering that the possible merging of the RFO into the NFO will come up for consideration once the NFO is fully established. NFO and RFO Scope Recommendation D1: NFO and RFO: Referral of Complaints to One Another The NFO and RFO should agree and publish a simple and documented process for referral to the other of complaints that are not within the jurisdiction of the scheme that receives them but appear to be within the other’s jurisdiction—including “hot transfers” of phone calls. 174 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Note to recommendation D1: As mentioned previously, the NFO can arrange with the RFO for the NFO to deal with the whole of a complaint that includes advice or intermediary services relating to a retirement fund where that is part of a wider complaint against a provider that is otherwise within the NFO’s jurisdiction. Recommendation D2: NFO and RFO: Time Limits for Complainants • Complainants should be able to refer a complaint to the NFO/RFO for at least three years from whichever is the later of the following: – The date of the act/omission complained about; or ­ – The date on which that complainant could realistically have known that they had cause to complain to the ombud. ­ • An ombud should have discretion to waive the time limit if the failure to comply with it arose from circumstances outside the complainant’s control (such as illness). Note on recommendation D2: • The reference to “that complainant” is intended to denote a subjective test based on the ombud’s assessment of the particular consumer’s degree of knowledge and sophistication, rather than an objective test—important in view of the large number of unsophisticated consumers in South Africa. Interaction and Powers Recommendation D3: NFO and PFA: Referral of Complaints to the Provider • This recommendation relates to any complaint that is referred to the NFO/RFO in circumstances where the NFO/RFO considers that the financial provider has not been given a sufficient opportunity to consider the complaint (a premature complaint). • The NFO/RFO should accept the premature complaint but, before investigating it, may refer it to the financial provider and set a time limit for the provider to try to settle the complaint with the complainant—in which event the NFO/RFO will monitor the outcome. Notes on recommendation D3: • In the case of the RFO, the reference to “financial provider” includes any person or entity that is within the RFO’s jurisdiction, even if it is not an authorized financial provider. • As chapter 9 shows, some financial providers are currently subject to differing rules in complaint handling, and some are not subject to any rules on complaint handling at all. So some financial providers may have fully functioning complaints processes, and others may have no special resources to handle complaints. • Until all financial providers have fully functioning processes for handling complaints, the NFO/RFO needs to be able to make a subjective judgment about whether a financial provider has an effective complaint-handling system and whether to refer a premature complaint to the financial provider before investigating it. But the NFO/RFO should not simply reject premature complaints. Recommendation D4: NFO and RFO: Redress An ombud who upholds a complaint should have power to award any one or more of the following forms of redress: • Compensation for the following: – Loss caused directly by the financial provider’s unfair act/omission – Consequential loss that would not have arisen but for the provider’s unfair act/omission ­ – Distress/inconvenience caused to the complainant by the provider’s unfair act/omission • Interest on compensation in appropriate circumstances • A direction—which requires the financial provider to put things right by doing, or not doing, something (specified by the ombud) in relation to the particular complainant 17. RECOMMENDATIONS FOR REFORM | 175 Note on recommendation D4: • In the case of the RFO, the reference to “financial provider” includes any person or entity that is within the RFO’s jurisdiction, even if it is not an authorized financial provider. Recommendation D5: NFO and RFO: Effect of an Ombud Final Decision Subject to any appeal: • If the complainant accepts an ombud final decision – The financial provider should be bound by the decision (whether or not the provider accepts the decision); and – The complainant should be bound by the decision they have accepted and should not be free to pursue the same issue ­ against the same provider in the courts. • If the complainant does not accept an ombud final decision – Neither party should be bound by the decision; and ­ – The complainant should be free to pursue the same issue against the provider in the courts. Notes on recommendation D5: • In the case of the RFO, the reference to “financial provider” includes any person or entity that is within the RFO’s jurisdiction, even if it is not an authorized financial provider. • In the case of the NFO, the provisions on the effect of an ombud decision would sit in the rules, approved by the statutory Ombud Council. In the case of the RFO, they would sit in amended statutory provisions. Recommendation D6: NFO and RFO: Enforcement of a Binding Ombud Final Decision • An ombud final decision that has become binding (and has not been overturned on appeal) should be enforceable through the court system in the same way as a court judgment. • The enforcement process should be able to be initiated by the complainant or (so that it can assist vulnerable complainants) by the NFO/RFO on behalf of the complainant. Note on recommendation D6: • The legislation should provide accordingly for any non-statutory ombud scheme (for example, the NFO) recognized by the statutory Ombud Council. • Decisions of the statutory PFA are already binding in the same way as court judgments. Independence Recommendation D7: NFO and RFO: Restrictions on Membership of Board • The chair and at least half of the other members of the NFO/RFO board should not be people who – Work in a financial provider or an association of financial providers, or have done so in the previous three years; or ­ – Have (or have a close family member with) a beneficial interest of more than 5 percent in a financial provider. • To avoid any perceived conflict of interest, none of the members of the NFO/RFO board should be – Someone who works in an association of financial providers (because they will owe a duty to the members of their association); – A serving financial regulator (to avoid any confusion between the differing roles of regulation and dispute-resolution); or – A politician who holds an elected national or provincial office, or has done so in the previous three years (to avoid any ­ possible link with political controversy). 176 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Note on recommendation D7: • In the case of the RFO, the reference to “financial provider” includes any type of person or entity that is within the RFO’s jurisdiction, even if it is not an authorized financial provider. Recommendation D8: NFO and RFO: Terms of Appointment of Board • Ordinarily, members of the NFO/RFO board should be – Appointed for terms of not less than three and not more than five years; and ­ – Be eligible for reappointment, subject to a maximum length of service of nine years. • Exceptionally, up to one-third of the first members of the NFO/RFO board may be appointed for terms of not less than two years, to facilitate creating continuity through a system of staggered terms. • Members of the NFO/RFO board should be appointed on terms that ­ – Secure their independence from the industry, consumer bodies, financial regulators, and politicians; – Protect them from removal—except for removal by the NFO/RFO board because of incapacity, misconduct, or other just ­­ cause; – Require them to act in the public interest, to disclose any conflict of interest, and not to be involved in any discussion/ ­­ decision where they have a conflict; – Require them to preserve the independence, integrity, and fairness of the decision-making process; and ­ – Require them to ensure that the NFO/RFO is appropriately resourced to carry out its objectives in a timely and efficient ­­ manner. Recommendation D9: NFO and RFO: Functions of Ombuds • Only an ombud should be able to make a final decision on the following: – Whether a complaint is (or is not) within the NFO/RFO’s jurisdiction ­ ­­ – The procedure for the resolution of any complaint – The outcome of a complaint ­­ • Only the NFO/RFO chief ombud or a senior ombud should be able to establish the NFO/RFO’s approach to particular types of cases. Recommendation D10: NFO and RFO: Appointment of Ombuds Ombuds should be • Selected by a transparent process, following a public advertisement; and • Appointed by the NFO/RFO board. Recommendation D11: NFO and RFO: Restrictions on Appointment of Ombuds Anyone appointed as the NFO/RFO chief ombud or as a senior ombud should not be someone who • Works in a financial provider or an association of financial providers, or has done so in the previous three years; or • Has (or has a close family member with) a beneficial interest of more than 5 percent in a financial provider. Note on recommendation D11: • In the case of the RFO, the reference to “financial provider” includes any person or entity that is within the RFO’s jurisdiction, even if it is not an authorized financial provider. 17. RECOMMENDATIONS FOR REFORM | 177 Recommendation D12: NFO and RFO: Terms of Appointment of Ombuds • The NFO/RFO chief ombud and any senior ombud should be – Appointed for terms of not less than five years; – Eligible for reappointment, subject to a maximum length of service of 10 years; and ­ – Told whether they are to be reappointed at least a year before the end of their first term. • All ombuds should be appointed on terms that – Secure their decision-making independence from the NFO/RFO board, the industry, consumer bodies, financial regulators, ­ and politicians; ­ – Protect them from removal—except for removal by the NFO/RFO board because of incapacity, misconduct, or other just cause; – Require them to act in the public interest, to disclose any conflict of interest, and not to be involved in any complaint where ­ they have a conflict; – Require them to preserve the independence, integrity, and fairness of the decision-making process; and – Protect their pay from being influenced by the outcome of cases (for example, by linking it to at least that of an equivalent grade of judge or another relevant comparator). Note on recommendation D12: • This should not prevent the NFO/RFO board from appointing a specialist part-time ombud (or ombuds)—on similar terms that secure their independence—to decide specific cases where the NFO/RFO chief ombud advises that specialist expertise is required that is not available among the existing ombuds. Accessibility Recommendation D13: NFO and RFO: Free for Complainants The NFO and RFO should each continue to be free of charge to complainants, so that cost does not create a barrier to access. Recommendation D14: NFO and RFO: Cross-Sector Points of Entry • The NFO board should resolve the complexities and inconsistencies in the rules and processes of the existing ombud schemes as quickly as possible. • As soon as possible after that, the NFO and RFO should establish one or more points through which complainants can submit complaints in relation to all financial sectors covered by either scheme. Recommendation D15: NFO and RFO: Receiving Complaints The NFO/RFO should each ensure that they are able to accept complaints • By any reasonable channel of communication that is available to consumers; and • Without necessarily requiring them to be received in writing or with a signature. Recommendation D16: NFO and RFO: Accessibility The NFO and RFO should agree a common strategy to train staff and combine resources in improving the visibility and The NFO and RFO should agree a common strategy to train staff and combine resources in improving the visibility and accessibility of the financial ombud system, including the following: • Equalizing visibility and accessibility in different urban and rural localities by partnering with advice agencies and other widely located bodies, and by periodic visits • Targeted use of the press, radio, and social media that takes account of the differing audiences that they address • Taking full account of the needs of consumers who are disadvantaged, vulnerable, disabled, or unused to receiving information and transacting business in English 178 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • Identifying and reporting publicly on the socioeconomic profile of complainants, to help better identify those to whom the ombud system is less visible or accessible • Taking active steps to make the ombud system more visible and accessible to underrepresented groups of potential complainants • Cooperating with the consumer financial-education activities of public agencies (but not being the body primarily responsible for consumer financial education) Note on recommendation D16: • New methods of remote working adopted by the existing ombud schemes in response to the COVID-19 pandemic have demonstrated that it is not necessary for all of an ombud scheme’s staff to be in one location. But we do not consider it feasible for the NFO and RFO to spread their offices widely around the country in a way that will deal in itself with the accessibility issue. That needs to be tackled in other ways. • The intention is to coordinate and increase the activities of the ombud system in making itself visible and accessible to consumers and in feeding back the lessons that can be derived from the cases that the ombud system has handled. But it is not the function of the ombud system (nor is it resourced to be) the source of overall financial education for citizens with a view to increasing their financial literacy. These are the responsibility of the state but often delegated to financial regulators—or, in a few countries, to a specialist agency. (See, for example, www.moneyadviceservice.org.uk/en/corporate/about-us.) Efficiency Recommendation D17: NFO and RFO: Resources and Expertise The NFO/PFA should each have the following: • Sufficient skilled staff and other resources to ensure the timely resolution of its intended workload • An integrated computerized case-management and document-management infrastructure to – Support the staff in managing the handling and resolution of complaints; – Provide information to monitor the efficiency of operations; and ­ – Provide information to assist efforts to improve accessibility • Clearly documented processes, procedures, and policies on the handling and resolution of complaints and on communication with users of the service • A knowledge-management system to provide staff with ready access to regularly updated information and material relevant to their work • A training, mentoring, and validation program to ensure that staff handling complaints have the necessary specialist knowledge and experience In addition, their budgets should include sufficient provision for these. Recommendation D18: NFO and RFO: Performance and Quality • The NFO/RFO should each have and report against the following: – Published service and performance standards ­ – A robust quality-assurance program to monitor quality, consistency, and timeliness ­ – Regular sampling of user views on the quality of service they received • The NFO/RFO should have a published procedure for complaints about the level of service, including the following: – How a service complaint can be made ­ – How it will be handled and by whom ­ ­ – A final stage that is conducted by an independent external person • At least every five years, the NFO/RFO board should commission an independent skilled person to review the NFO/RFO’s operations (comparing them against international good practice) and publish the report. 17. RECOMMENDATIONS FOR REFORM | 179 Openness Recommendation D19: NFO and RFO: Annual Report The NFO/RFO should each publish an annual report from its board and chief ombud that includes (at least) the following: • The numbers and types of complaints that – Were received; ­ ­ – Were outside its jurisdiction; – Were referred to the other; – Were referred to financial providers as premature complaints; ­ – The scheme declined to deal with (even though in jurisdiction); ­ ­ – Were discontinued; – Were resolved without an ombud final decision; ­ – Were resolved by an ombud final decision; – Were appealed; ­ ­ – Were resolved in favor of the complainant; and – Were resolved in favor of the financial provider ­ • The following: – Performance against its timeliness and quality standards ­ – The outcomes of any service complaints – Socioeconomic information on the distribution of its complainants ­ – Plans to reach underrepresented groups of potential complainants ­ – Representative case studies ­ – Any systemic or significant problems identified in the financial system • The following (or links to them should be published on the NFO/RFO websites): – The NFO/RFO’s governance arrangements ­ – The names and backgrounds of the members of its board ­ ­ – The names and backgrounds of its ombuds – Its rules – Its arrangements for information sharing with regulators ­ – Its visibility and accessibility program – Its quality assurance program – Details of staff numbers (by role) – Its annual accounts Recommendation D20: NFO and RFO: Quarterly Reports The NFO should publish, and the RFO should consider publishing, a quarterly report of • Key statistics; and • New and emerging issues. 180 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Recommendation D21: NFO and RFO: Consultation As part of its wider program of engagement with stakeholders, the NFO/RFO should each consult publicly on the following: • Future business plans • Proposed budgets • Proposed funding arrangements • Proposed changes to its scope, powers, and processes Recommendation D22: Relations with Regulators • The NFO/RFO and the FSCA/NCR (as the case may be) should provide one another, on a regular basis, with appropriate information to assist the other in fulfilling its functions. • The arrangements, including the scope of the information that may be exchanged, should be documented and published. • The NFO/RFO and the FSCA/NR (as the case may be) should take account of the information provided in fulfilling their functions. • In particular: – The NCR should take account of reports from the NFO about complaints against credit providers that turned out to be unauthorized; and – The FSCA should take account of reports from the RFO about non-payment of pension contributions by employers. • The NFO, RFO, FSCA, and NCR should each nominate a person to be responsible for the management of the liaison and exchange of information with the others. Ombud Council Modified Ombud Council Recommendation E1: Ombud Council The statutory provisions relating to the Ombud Council should be modified in order to increase its independence, rename its chief executive, and modify its powers in order to facilitate (and then adapt to) the new structure of the ombud system. Independence Recommendation E2: Ombud Council: Appointment of Council Members The statutory provisions for the appointment by the minister of the members of the Ombud Council (other than the Chief Ombud) should be amended so that • They are required to be chosen by a transparent process, following a public advertisement; • They are required to provide a balance of understanding in respect of – The regulation of financial providers, – The legitimate concerns of consumers of financial services and credit, and ­ – The legitimate concerns of the financial industry; and ­ • They are appointed on terms that secure their independence (including from the minister), and for a minimum term of at least three years; while • They retain the existing statutory safeguards concerning their dismissal. 17. RECOMMENDATIONS FOR REFORM | 181 Recommendation E3: Ombud Council: Appointment of Chief Ombud The statutory provisions for the appointment of the Chief Ombud should be amended so that the Chief Ombud • Is to be appointed by the other members of the Ombud Council and chosen by a transparent process, following a public advertisement; • Is to be appointed on terms that secure their independence (including from the minister), and for a minimum term of five years; • Must not have worked in a financial institution (or an industry body for the sectors) in the previous three years; and • Is to be protected from removal—except for incapacity, misconduct, or other just cause and only by the other members of the Ombud Council. Effectiveness Recommendation E4: Ombud Council: Renaming the Chief Ombud The title “Chief Ombud” is likely to create confusion over the true role and responsibilities of the chief executive of the Ombud Council and should be replaced by something more consistent with the role—such as Chief Executive or Director-General. Recommendation E5: Ombud Council: Extension to Powers To facilitate consolidation of the system, the Ombud Council should be given power (where it considers it appropriate) to • Authorize a recognized non-statutory ombud (for example, the NFO) to deal with a complaint against a financial provider that is already within its jurisdiction, even if part or all of the complaint falls within the jurisdiction of a statutory ombud scheme; and • Designate a recognized non-statutory ombud (for example, the NFO) as the automatic ombud scheme in a particular sector (or sectors) to exercise jurisdiction, with binding decisions, over any financial provider in that sector (or those sectors). Note to recommendation E5: • This is to facilitate the establishment of the NFO as a cross-sector ombud scheme. See recommendations B2 and B3 and the notes to them. Recommendation E6: Ombud Council: Common Points of Entry to the System The Ombud Council’s current statutory duty to establish and operate one or more centers to facilitate financial customers’ access to appropriate ombuds should be modified, so that it becomes a power to require the NFO and RFO to establish and operate effective access points in relation to all financial sectors covered by either scheme. Notes to recommendation E6: • As explained more fully in chapter 15 of this report, the consolidated ombud system will be better placed than the Ombud Council to provide fully effective points that provide such cross-sector access as part of an integrated complaint-handling process. • Involvement of the Ombud Council, which does not handle complaints and whose oversight role is unseen by most of the public, could confuse potential complainants. Recommendation E7: Ombud Council: Review of Powers Once the NFO has been established, and in the light of the consolidation of the system and the increased independence of governance, the NT should review the statutory powers of the Ombud Council with a view to repealing any intrusive or coercive powers that • Are no longer appropriate in the light of the reform of the ombud system; • Are no longer cost effective in the light of the reform of the ombud system; and/or • May be perceived as infringing the independence of the reformed ombud system. Openness Recommendation E8: Ombud Council: Reports The Ombud Council should be required to publish regular public reports (at least annually) on its work. 182 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 17. RECOMMENDATIONS FOR REFORM | 183 Appendixes Appendix A OVERVIEW OF OMBUD SYSTEM DATA Banking Credit FAIS LTI STI JSE PFA Ombud Ombud Ombud Ombud Ombud Ombud As set No. financial providers covered 34 118 All 53 53 out in the 240294 PF Act February December March December December March Date of financial/data year-end N/A 28 31 31 31 31 31 Annual budget: • Total income R 32.5 R 14.8 R 57.2 R 29.5 R 45.2 R 63.9 N/A million million million million million million • Total expenditure R 30.2 R 16.0 R 40 R 29.5 R 42. R 72.5 N/A million million million million million million No. staff: • Total full-time equivalent (FTE) 29 12295 49 37 47 60 0 • No. ombuds296 1 1 1 13 1 19297 1 • Total casework staff FTE298 21 5 24 21 42 29299 0 • Total other staff FTE300 7 6 24 3 4 12 0 Banking Credit FAIS LTI STI JSE PFA Ombud Ombud Ombud Ombud Ombud Ombud Enquiries301 received: • By phone - - N/A 17,877 - - - • By e-mail or in writing - - N/A 460 - - - • Total 26,257302 37,269 N/A 18,337 3,420 2,565 1 Total complaints 6,472 29,510 8,835 10,509 13,787 11,399 1304 received303 Total complaints referred to Not an FSP305 4,709 4,439 4,051 294 9,445 0 recorded306 Total complaints referred to 900– 616 Only from another ombud scheme or 1,000 2,467 3,266 from 1,355 N/A August official agency +/- July APPENDIX A: OVERVIEW OF OMBUD SYSTEM DATA | 185 Banking Credit FAIS LTI STI JSE PFA Ombud Ombud Ombud Ombud Ombud Ombud Top five other ombud Only from N/A schemes or official August agencies to which complaints were referred (with numbers if possible): 1 CGSO307 Banking O NCR STI O LTI O FSCA 153 382 1,079 325 734 2 Credit O NCR STI O PFA FAIS O GEPF308 162 300 665 138 359 3 MIO309 Banking O FAIS O CGSO LTI O 116 645 50 90 4 STI O LTI O Statutory O MIO 35 Transnet 72 340 52 5 LTI O FSCA Banking O CMS310 DEL 47 194 35 33 Total no. cases311 opened 3,192 6,472 4,439 5,750 10,367 11,399 88313 (3,574)312 Total no. cases closed 6,333 4,937 4,507 3,558 9,167 10,289 84314 Banking Credit FAIS LTI STI JSE PFA Ombud Ombud Ombud Ombud Ombud Ombud Average no. days from receipt of a complaint to final closure: • All cases 57 43 21 110 117.92 180 90315 • Cases settled316 N/A Not recorded 90 101.58 120 90 • Cases resolved by formal Not recorded 124 122.98 210 90 decision Percentage of cases settled within the following time periods from receipt of the complaint: • Up to three months 63.7% 68.4% 81.76% 67.96% 59% 0% 100% • Over three, up to six months 31.4% 30.07% 9.42% 22.80% 20% 71.29% 0 • Over six, up to nine months 4.1% 1.4% 5.41% 6.40% 13% 26.70% 0 • Over nine, up to 12 months 0.8% 0.06% Not recorded 2.10% 6% 1.41% 0 • Over 12 months 0% 0 Not recorded 0.74% 2% 0.6% 0 186 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Banking Credit FAIS LTI STI JSE PFA Ombud Ombud Ombud Ombud Ombud Ombud Percentage of cases resolved Do not distinguish N/A Not recorded by formal decision within the between settled and following time periods from formal decisions317 receipt: • Up to three months 41% 46% 0% 100% • Over three, up to six months 43% 29% 19.94% 0 • Over six, up to nine months 11% 19% 75.60% 0 • Over nine, up to 12 months 3.6% 5% 3.60% 0 • Over 12 months 1.4% 1% 0.86% 0 Outcome of cases: Withdrawn by customer Complainant 227 Dismissed319 1.88% 505 56 0 withdrew case 0,47% 4,790 Better than any redress offered by the FSP before the Complaint Referred 34.12% 1,893 4,582 0 complaint was referred to the fully upheld 2,599 ombud scheme 17.7% No better than any redress Complaint partly Settled 56% 614 737 1 offered by the FSP before upheld 5.12% 1,850 the complaint was referred to the scheme No award made but Complaint not upheld Determined Not Data not 2,405 information provided to 72.01% 13 recorded available complainant separately Banking Credit FAIS LTI STI PFA JSE Ombud Ombud Ombud Ombud Ombud Ombud Other outcome Information Total Complainant Abandoned 0 (please provide given; no 9,252 accepted insurer’s 134 details) finding made unfavorable 4.7% decision 8 percent 30 Total amounts R R R 57,263,775 R 874,286 R 94,934,891 Impossible 0 agreed or ordered 20,418,920 6,900,000 (statutory under Rule 3.2.5, to provide; to be paid to maximum is plus calculations complainants (in R) R 800,000) R 200,400,000 in of benefits lump sums. left to This amount retirement does not include fund to recurring income compute in disability benefits, terms of its annuities, and so rules forth Source: Data provided by each ombud scheme in response to WBG diagnostic team’s questionnaire APPENDIX A: OVERVIEW OF OMBUD SYSTEM DATA | 187 Appendix B QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES Background Information Consulting Financial Ombud Schemes and Other Stakeholders In 2017 a consultation policy document A Known and Trusted Ombud System for All320 was issued by As part of the preliminary consultation with the National Treasury. Following on from this, the stakeholders, this questionnaire is being sent to the National Treasury and the Financial Sector Conduct following financial ombud schemes: Authority have asked the World Bank to review South Africa’s financial ombud system. • Credit Ombud The review team is tasked with: • Ombudsman for Short Term Insurance • evaluating the existing financial ombud system • Johannesburg Stock Exchange Ombud against international good practice • Ombudsman for Banking Services • suggesting opportunities to address any identified • Ombudsman for Long Term Insurance weaknesses/gaps • Pension Funds Adjudicator • considering the potential for further reform and alternative models • Ombud for Financial Services Providers (FAIS Ombud) The diagnostic will not evaluate financial service providers’ internal complaints handling arrangements (other than considering financial ombud schemes’ International Good Practice interactions with these where relevant). Guidance on international good practice includes – The scope of the diagnostic assessment will cover the following: • on the role of an ombud system in the wider context of financial consumer protection: • the existing financial ombud system - World Bank good practices for financial • the individual financial ombud schemes consumer protection;321 • the statutory provisions for the creation of an - OECD high-level principles on financial Ombud Council consumer protection;322 and • potential alternative structures - OECD effective approaches to implementing those high-level principles;323 The review team is led by Nina Pavlova Mocheva from the World Bank. The questionnaire was • on the principles and practices relating to an developed with specialist input from two former ombud system specifically: senior financial ombuds with international experience—Shane Tregillis (from Australia) and - World Bank report on fundamental principles David Thomas (from the United Kingdom). for financial ombudsmen;324 APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 189 - INFO Network325 guide on effective approaches • Openness to fundamental principles;326 and clear, and open to scrutiny, about its work and the lessons that can be drawn from it - INFO Network guide on setting up an ombudsman;327 Structure of the Questionnaire • on the principles and practices relating to ombud systems in general: The attached questionnaire consists of 9 sections, covering: - EU328 recommendation 1998/257/EC on out-of- court settlement of consumer disputes;329 1 Basic information - EU directive 2013/11/EU on alternative dispute 2 Effectiveness resolution for consumer disputes;330 3 Independence - Ombud Association 331 guide to principles of 4 Accessibility good governance;332 5 Fairness - Ombud Association guide to principles of good complaint handling;333 6 Efficiency - Australia and New Zealand benchmarks for 7 Openness industry based customer dispute resolution;334 and 8 Looking ahead - Australia and New Zealand key practices for 9 Data industry based customer dispute resolution;335 Instructions for Respondents Criteria • Please send your scheme’s response in electronic While the different guidance on international good form to: saombuddiagnostic@worldbank.org by practice uses varying terminology, the key attributes July 17, 2020. are similar. In respect of the overall system and the • To make it easier for you, and to assist individual schemes, the World Bank team will be comparability of data, many of the questions are focusing on: in yes/no format. • Effectiveness • Other questions have answer boxes, which you consistent redress in all appropriate sectors of can expand in order to make sufficient room for financial services your scheme’s answer. • Independence • If you want to refer to a document that is already visibly objective, impartial and unbiased published on the internet, it will suffice if you • Accessibility provide the internet address and page/paragraph well-known, easy to use and free for consumers number, rather than attaching it. • Fairness • If (exceptionally) you need to add additional processes and decisions visibly fair and equitable information, please add this at the end of the questionnaire – quoting the question number. • Efficiency good quality of service and value for money • If you need to provide documents as attachments, you can do so, by attaching them to the email with the responses to the questionnaire. To the extent 190 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC possible, please provide a list with documents • We will treat factual details of your scheme as titles attached, at the end of the questionnaire. public. But we will treat any opinions you express as non-attributable—we will not say who they • Feel free to provide any further comments that came from without your permission your scheme would like to make. But your response need not be formal or lengthy. • If you have queries, please email them to nmocheva@ifc.org Definitions To ensure comparability amongst the responses from the different financial ombud schemes, please note the following explanations of terms used in the questions, and reflect them in your answers— consumer = someone who buys a financial service mainly for personal or household use. It also includes small businesses, if your scheme covers complaints from them. complainant = someone who makes a complaint to a financial service provider or refers a complaint to your scheme. constitutional rules = the rules setting out the governance, scope and powers of your scheme, whether contained in a law, terms of reference or other documents. direction = a requirement, issued by an ombud, that a financial service provider must put things right by doing, or not doing, something (specified by the ombud) in relation to a particular complainant. ombud = the person (or people) in your scheme, whatever their job title, with power to make final decisions on complaints—sometimes called an ombudsman, adjudicator, arbiter or mediator. redress = compensation (payable by the financial service provider) or other remedies awarded by your scheme in favor of a complainant. Questions 1 BASIC INFORMATION About your scheme 1a) Name of ombud scheme [101] What is the official name of your ombud scheme? 1b) Contact for this questionnaire [102] If we have any questions about your scheme’s answers to this questionnaire, whom should we contact? Full name Job title Email address Phone number APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 191 1c) Constitutional documents [103] The rules of your scheme (whether contained in a law, terms of reference or other documents) that set out your scheme’s: • governance; • scope; and • powers Please provide titles and weblinks. If they are not published on the internet, please supply electronic copies. You can use the below reference number (for example, CD1) to refer to the document in other answers to this questionnaire. Please expand the table below, if you provide more than 5 titles. CD1 CD2 CD3 CD4 CD5 1d) Policies and procedures [104] Any documented policies/procedures that your scheme has concerning: • internal guidance on your complaint/case-handling process (or process map); • externally-published summary of your process; • outreach and awareness-raising (and how they are assessed); • accessibility; • defining and dealing with vulnerable consumers; • fairness in decision-making; • quality-assurance; • skills-development and training. 192 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Please provide titles and weblinks. If they are not published on the internet, please supply electronic copies. You can use the reference number (for example, PP1) to refer to the document in other answers to this questionnaire. PP1—internal guidance on your complaint/case-handling process (or process map) PP2—externally published summary of your process PP3—outreach and awareness-raising (and how they are assessed) PP4—accessibility PP5—defining and dealing with vulnerable consumers PP6—fairness in decision-making PP7—quality-assurance PP8—skills-development, training and assessment 1e) (Senior) ombud [105] Please give the full name and brief background of your ombud or, if you have more than one, of your most senior ombud. 1f) Governing board/council [106] Please give the full names and brief backgrounds of the members of your governing board or council (if any). APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 193 2 EFFECTIVENESS Consistent redress in all appropriate sectors of financial services 2a) Financial service providers covered [201] Which types of financial service providers are covered by your scheme? [202] Please explain whether this coverage arises from a financial service provider: • being regulated for a particular activity or activities; • being a member of a particular industry association; • joining your scheme individually; or • being covered in some other way. [203] Are they covered automatically, or do they have to volunteer to join? Automatic/Volunteer [204] Do they comprise all of the financial services providers in the relevant sectors? Yes / No [205] If they do not comprise all of the financial services providers in the relevant sectors, please say: • which providers are not covered by your scheme; • why they are not covered; and • which ombud scheme (if any) they are covered by. [206] Do they include businesses where provision of the financial service is only ancillary (for example, to a sale of goods or services)? Yes / No [207] Please say which documents cover the points in section (2a), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 2b) Financial service activities covered [208] In respect of the financial service providers that are covered by your scheme, which of the following activities are covered by your scheme? • accepting deposits Yes / No • lending (unsecured) Yes / No • intermediation for lending (unsecured) Yes / No • lending (secured) Yes / No • intermediation for lending (secured) Yes / No • issuing credit/debit/charge cards Yes / No 194 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • providing other payment services Yes / No • issuing electronic money Yes / No • short-term insurance (general insurance) Yes / No • long-term insurance (life and investment) Yes / No • intermediation for insurance Yes / No • providing investments Yes / No • intermediation for investments Yes / No • providing occupational pensions Yes / No • providing private pensions Yes / No • intermediation for pensions Yes / No • running a credit bureau Yes / No • debt collection Yes / No • any activities ancillary to the financial service Yes / No • any others (please say what they are) [209] If any activities are specifically excluded from your scheme, please say: • which activities are specifically excluded; and • which constitutional document or law excludes them. [210] If any of the activities covered by your scheme are also covered by another ombud scheme, please say: • which activities; • which other ombud scheme • the reason for the overlap; and • how cases are allocated between the schemes in practice. [211] Does your scheme’s jurisdiction cover matters that are the subject of rights, rules, codes, standards or guidance under the Consumer Protection Act 2008 or other general non-financial sector legislation? If yes, please give details Yes / No [212] In your scheme, are financial service providers held liable for the acts/omissions of their agents? Yes / No [213] In your scheme, is a successor financial service provider held liable for acts/omissions by a predecessor provider where the successor took over the predecessor (or bought the predecessor’s customer relationships)? Yes / No APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 195 [214] Please say which documents cover the points in section (2b), indicating the paragraph, section or page numbers—unless already mentioned in the specific answer. 2c) Types of complainants covered [215] Does your scheme cover complaints from consumers—meaning someone acting mainly for purposes outside their trade, business or profession? Yes / No [216] If the financial service was provided in (or from) South Africa, is the consumer covered even if they live outside the country? Yes / No [217] Does your scheme cover complaints by all businesses? Yes / No [218] Does your scheme cover complaints by just smaller businesses? Yes / No [219] If it covers complaints by just smaller businesses, how are they defined? [220] Can your scheme handle a financial services complaint by one financial service provider against another financial service provider, if they are otherwise eligible? Yes / No [221] Please say which documents cover the points in section (2c), indicating the paragraph, section or page numbers—unless already mentioned in the specific answer. 2d) Non-customers covered Does your scheme take complaints from the following non-customers who have been affected by the activities of a financial service provider— [222] prospective customers, for complaints about the financial service provider’s wrongful refusal to provide a service (perhaps involving unlawful discrimination)? Yes / No [223] users (and prospective users) of payment services, and holders (and prospective holders) of electronic money, provided by the financial service provider? Yes / No [224] a guarantor or surety for a loan (or credit) that was provided to a customer by the financial service provider? Yes / No [225] a beneficiary under an insurance policy taken out by someone else (e.g., a policy taken out by an employer to benefit its employees, or by someone to benefit their family/dependents)? Yes / No [226] a beneficiary under a collective investment managed by the financial service provider (such as a holder of units in a unit trust)? Yes / No [227] a beneficiary under a pension taken out by someone else (such as a pension taken out by someone for their own benefit and the benefit of their family/dependents)? Yes / No [228] someone whose credit history has been (incorrectly) recorded by a credit bureau (so that their ability to borrow has been adversely affected)? Yes / No 196 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC [229] someone from whom a debt is being (incorrectly) claimed (such as where the lender has wrongly confused them with the actual debtor)? Yes / No [230] any other non-customers? (Please say who) [231] Please say which documents cover the points in section (2d), indicating the paragraph, section or page numbers—unless already mentioned in the specific answer. 2e) Time limits Time limits within which a complaint must be referred to your scheme— [232] Is there a time limit from the date of the act/omission that caused the dispute? Yes / No [233] If so, what is the time limit? [234] Does that time limit reflect what is usual in South Africa’s courts? Yes / No [235] Is the legal time limit for taking a case to court interrupted whilst an ombud considers the case? Yes / No [236] In cases where the consumer could not have known there was a problem at the time, is the time limit extended to run from the date when the consumer knew (or should reasonably have known) that they had grounds for complaint? Yes / No [237] Is there also a time limit from the date on which the financial service provider issued a written final decision on the consumer’s complaint? Yes / No [238] If so, what is the time limit? [239] Does this time limit only apply if that final decision warned the consumer of the time limit and gave the consumer contact details for the relevant financial ombud scheme? Yes / No [240] Does an ombud have discretion to extend time limits where the consumer was prevented (for example, by illness) from complying with the time limit? Yes / No [241] Please say which documents cover the points in section (2e), indicating the paragraph, section or page numbers—unless already mentioned in the specific answer. APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 197 2f) Complaints against financial service providers [242] How does your scheme define a complaint against a financial service provider? [243] Does that definition align with the proposed definition336 in the proposed COFI Bill?337 Yes / No [244] Does it include an oral (rather than written) expression of dissatisfaction? Yes / No [245] Is there a requirement that there has been some loss or material inconvenience to the complainant? Yes / No [246] Please say which documents cover the points in section (2f), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 2g) Complaint-handling by financial service providers [247] Are financial service providers covered by your scheme subject to a requirement to deal with complaints fairly and promptly? Yes / No [248] If so, are these set by: • the law Yes / No • your scheme’s constitutional rules Yes / No • a financial regulator’s rules Yes / No • an industry code? Yes / No Under the relevant rules are financial service providers within your scheme’s jurisdiction required to— [249] have an accessible, effective and fair internal complaints process, which is published? Yes / No [250] issue a written response to a complaint, with reasons, within a specified time? Yes / No [251] tell complainants that, if they are still dissatisfied, they can go to the ombud scheme? Yes / No [252] have a single person with overall responsibility for the handling of complaints? Yes / No [253] respond promptly to communications from the ombud scheme? Yes / No [254] provide information and documents requested by the ombud scheme? Yes / No [255] comply promptly with an ombud’s decision? Yes / No [256] If a consumer sends a complaint to you before raising it with the financial service provider, does your scheme offer to send it on to the financial service provider? Yes / No [257] If your scheme sends such a complaint on to the financial service provider, does your scheme track the outcome? Yes / No [258] If a consumer sends a complaint to you after reaching the end of the financial service provider’s complaint-handling procedure, are there any circumstances in which your scheme may refer the complaint back to the financial service provider? Yes / No [259] What are those circumstances? 198 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC [260] Please say which documents cover the points in section (2g), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 2h) Early termination In the following circumstances, does your scheme have a discretionary power to dismiss cases at an early stage where it is readily apparent that the case should not proceed further? [261] the complainant has not suffered any loss or material inconvenience? Yes / No [262] the financial service provider is already offering adequate compensation? Yes / No [263] the complainant is acting unreasonably? Yes / No [264] the complaint is about the legitimate exercise of commercial judgement? Yes / No [265] the complaint is about investment performance (rather than investment suitability)? Yes / No [266] the complaint is of a kind that only a court can deal with properly? Yes / No [267] the complaint was the subject of court proceedings in which the court issued a judgement on the merits of the case? Yes / No [268] the complaint is subject to court proceedings (and the court has not suspended the proceedings so that the matter can be considered by the financial ombud scheme)? Yes / No [269] the complaint was previously considered by your scheme (or a predecessor scheme), unless material new evidence (that would change the outcome) has since become available? Yes / No [270] other grounds (please say what) [271] Please say which documents cover the points in section (2h), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 2i) Obtaining information Does an ombud have power to compel the provision of relevant information and documents (unless they are protected from disclosure by law) from— [272] the complainant? Yes / No [273] the financial service provider complained against? Yes / No [274] any other financial service provider covered by your scheme that holds relevant information? Yes / No [275] Please say which documents cover the points in section (2i), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 199 2j) Redress Redress that an ombud can award if they uphold a complaint in favor of the consumer— [276] Can the ombud require the financial service provider to pay compensation to the consumer for loss caused directly by the financial service provider’s unfair act/omission? Yes / No [277] Can the ombud require the financial service provider to pay compensation to the consumer for consequential loss which would not have arisen but for the unfair act/omission? Yes / No [278] Can the ombud require the financial service provider to pay compensation to the consumer for any material distress or inconvenience caused to the consumer? Yes / No [279] Does the ombud have power to award interest on the compensation in appropriate circumstances? Yes / No [280] Does the ombud have power (instead of, or as well as, awarding compensation) to make a ‘direction’—which requires the financial service provider to put things right by doing, or not doing, something (specified by the ombud) in relation to the particular complainant? Yes / No [281] Is the overall aim to put the complainant (so far as practicable) in the position they would have been in, but for the act/omission that gave rise to the complaint? Yes / No [282] Is there an upper limit on the amount of compensation that an ombud can award (or the amount of any money payable to, or for the benefit of, the consumer as the result of a direction)? Yes / No [283] If so, how much is the upper limit (in South African Rand)? If there are differing limits for different types of complaint or loss, please explain what. [284] When was the upper limit last formally reviewed? [285] What was the benchmark or basis for the upper limit? [286] Please say which documents cover the points in section (2j), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 2k) Effect of an ombud decision [287] Does an ombud decision bind the consumer only if the consumer accepts it? Yes / No [288] Does an ombud decision bind the consumer whether the consumer accepts it or not? Yes / No [289] If an ombud decision binds the consumer, can the consumer also pursue the same complaint against the financial service provider in court? Yes / No [290] If the consumer accepts an ombud decision, does the decision bind the financial service provider whether the financial service provider accepts it or not? Yes / No 200 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC [291] If the consumer accepts an ombud decision, does the decision bind the financial service provider whether the financial service provider accepts it or not? Yes / No [292] Is there any appeal against an ombudsman decision? Yes / No [293] If there is an appeal against an ombudsman decision, please say: • who, if anyone, has to agree to there being an appeal; • on what grounds an appeal can be made; and • who hears the appeal? How, and by whom, a binding ombud decision can be enforced if a financial service provider is slow to pay— [294] If the financial service provider is regulated, can it be subject to sanction by the financial regulator? Yes / No [295] Can the consumer enforce the decision in court? Yes / No [296] Can your scheme help the consumer to enforce the decision? Yes / No If the financial service provider becomes insolvent— [297] Is there a relevant compensation/indemnity fund? Yes / No [298] Can it pay out on the basis of an ombud’s decision, without having to make a fresh investigation of its own? Yes / No [299] Can your scheme (with the consent of the complainant) pass its records on the case to the compensation/indemnity fund? Yes / No [299A] Please say which documents cover the points in section (2k), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 3 INDEPENDENCE Visibly objective, impartial, and unbiased 3a) Board/council [301] Does your scheme have its own board/council? Yes / No [302] Does your scheme’s board/council have power to make changes to the scope and powers of your scheme without the financial industry or consumer bodies having a veto? Yes / No [303] Does the board/council consult relevant stakeholders before making such changes? Yes / No [304] Are members of the board/council barred from becoming involved in deciding cases? Yes / No Does their role include: [305] appointing the ombud(s)? Yes / No [306] safeguarding the independence of the ombud(s)? Yes / No [307] ensuring that your scheme has adequate resources to handle its work? Yes / No APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 201 [308] adopting the budget? Yes / No [309] overseeing the efficiency and effectiveness of your scheme? Yes / No [310] advising on the strategic direction of your scheme? Yes / No [311] Who appoints the members of the board/council? [312] Are the members of the board/council chosen by a transparent process, following a public advertisement? Yes / No [313] Are serving politicians barred from being appointed as members of the board/council? Yes / No [314] Are serving financial regulators barred from being appointed as members of the board/council? Yes / No [315] Are all members of the board/council required to be of good character? Yes / No [316] Is someone associated with the financial industry338 barred from being chairman of the board/council? Yes / No [317] Are people associated with the financial industry barred from forming a majority of the board/council? Yes / No [318] Does the board/council collectively provide a balance of understanding in respect of: • the regulation of financial service providers; • the legitimate concerns of consumers of financial services; and • the legitimate concerns of the financial industry? Yes / No [319] Are the members of the board/council appointed on terms that secure their independence from: those who appointed them; the financial industry; consumer bodies; financial regulator(s); and politicians? Yes / No [320] Are members of the board/council appointed for a term of at least three years? Yes / No [321] Are members of the board/council protected from removal—except for incapacity, misconduct or other just cause and only by a body that is independent of the financial industry and independent of consumer bodies? Yes / No [322] Are members of the board/council required to act in the public interest? Yes / No [323] Are members of the board/council required to disclose any conflict of interest and not be involved in any connected discussion/decision? Yes / No [324] Please say which documents cover the points in section (3a), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 3b) Ombud(s) [325] Who appoints any ombuds? [326] Is any ombud chosen by a transparent process, following a public advertisement? Yes / No [327] Is anyone who has worked in a financial service provider (or an industry body for the sectors) covered by the ombud scheme in the previous three years barred from being an ombud? Yes / No 202 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC [328] Is any ombud required to have appropriate dispute-resolution skills? Yes / No [329] Is any ombud required to be of good character? Yes / No [330] Is any ombud appointed on terms that secure their independence from: those who appointed them; the financial industry; consumer bodies; financial regulator(s); and politicians? Yes / No [331] Are senior financial ombuds appointed (or reappointed) for a term of at least five years? Yes / No [332] If an ombud can be reappointed: do the reappointment criteria and process preserve their independence? Yes / No [333] If they can be reappointed, are they told the outcome at least one year before the previous term ends? Yes / No [334] Is any ombud protected from removal—except for incapacity, misconduct or other just cause and only by a body that is independent of the financial industry and independent of consumer bodies? Yes / No [335] Is any ombud required to act with integrity? Yes / No [336] Is any ombud required to disclose any conflict of interest and not be involved in any connected case? Yes / No [337] Is any ombud’s pay linked to some appropriate external benchmark (for example, an equivalent grade of judge)? Yes / No [338] Is any ombud’s pay protected from being influenced by the outcome of cases, and protected from reduction or suspension? Yes / No [339] Is the day-to-day management of your scheme delegated to the ombud (or the chief ombud if there is more than one ombud)? Yes / No [340] Does the ombud (or the chief ombud if there is more than one ombud) have the right to select the staff of your scheme? Yes / No Under your scheme’s constitutional rules, can only an ombud: [341] decide finally whether any case is within your scheme’s jurisdiction? Yes / No [342] choose the procedure for the resolution of any case? Yes / No [343] decide the final outcome of any case? Yes / No [344] Is a decision by an ombud protected from being overturned except by the courts (or a tribunal with equivalent independence and standing)? Yes / No [345] Please say which documents cover the points in section (3b), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 3c) Resources [346] Does your scheme choose, appoint and employ its own staff? Yes / No [347] Does your scheme have its own budget—which is not part of the budget of another body? Yes / No [348] Is the proposed yearly budget, covering your scheme’s income and outgoings, prepared by the (chief) ombud and adopted by the board/council? Yes / No [349] Does anyone else have to approve the budget and, if so, who? [350] Is the funding structure designed so that those providing the funds (whether from the public sector or private sector) cannot influence the work of your scheme? Yes / No APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 203 [351] Does any funding from the industry come through levies, case fees or a combination of these? (Please explain briefly) [352] Please say which documents cover the points in section (3c), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 4 ACCESSIBILITY Well-known, easy to use, and free for consumers 4a) Visibility Are financial service providers covered by your scheme required to tell customers in writing about your scheme: [401] on the financial service provider’s website? Yes / No [402] at the point of sale? Yes / No [403] in contracts? Yes / No [404] if the customer makes a complaint? Yes / No [405] in its final written decision on a complaint? Yes / No Does the information on your scheme’s own website include: [406] the members of the governing body and their backgrounds? Yes / No [407] the name of any financial ombud and their background? Yes / No [408] the method of appointment and term of office of any ombud? Yes / No [409] which financial service providers are covered? Yes / No [410] which activities are covered? Yes / No [411] which complainants are covered? Yes / No [412] what non-customer complainants are covered? Yes / No [413] any time limits within which a dispute must be referred to the ombud scheme? Yes / No [414] any minimum or maximum value of disputes that your scheme can handle? Yes / No [415] any grounds on which your scheme may decline to deal with a case? Yes / No [416] what redress an ombud can award? Yes / No [417] the effect of an ombud’s decision on the financial service provider and the complainant? Yes / No [418] how, and by whom, an ombud’s decision can be enforced? Yes / No [419] what information is kept confidential, and what may be published? Yes / No [420} your scheme’s most recent annual report? Yes / No 204 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC [421] any current consultations? Yes / No [422] the outcome of any recent consultations? Yes / No [423] whether the complainant must first complain directly to the financial service provider? Yes / No [424] anything else the complainant must do before referring a dispute to your scheme? Yes / No [425] any requirements on how financial service providers handle complaints? Yes / No [426] whether or not your scheme handles enquiries? Yes / No [427] whether or not your scheme actively facilitates agreed fair outcomes (for example, by mediation, conciliation or other means)? Yes / No [428] whether or not your scheme actively investigates cases? Yes / No [429] whether or not bringing a dispute to your scheme suspends any time limit for taking the dispute to court? Yes / No [430] the language(s) in which disputes can be submitted and can be handled? Yes / No [431] In what languages (other than English) can complaints be submitted and be handled? For potential complainants who do not have access to the internet, does your scheme ensure that information is also readily available through: [432] consumer advice organizations? Yes / No [433] local consumer advice centers? Yes / No [434] public libraries? Yes / No [435] local government authorities? Yes / No [436] elected representatives? Yes / No [437] the press? Yes / No [438] television? Yes / No [439] radio? Yes / No [440] social media? Yes / No [441] In what other ways? [442] Does your scheme take active steps to help make consumers (especially vulnerable and disadvantaged consumers) aware of its services? Yes / No [443] Please say which documents cover the points in section (4a), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 205 4b) Easy to use and free for consumers Can complaints be submitted to your scheme— [444] online? Yes / No [445] by post? Yes / No [446] by free-call telephone? Yes / No [447] by paid-for telephone call? Yes / No [448] face-to-face meeting? Yes / No [449] by SMA? Yes / No [450] by social media (if yes, please say which) Yes / No [451] Does your scheme make appropriate provision for consumers who are more vulnerable or disadvantaged? Yes / No [452] Does your scheme allow complainants who need it to appoint someone else to help them present their complaint? Yes / No Does your scheme have special provision to deal with issues of: [453] disability? Yes / No [454] language? Yes / No [455] literacy? Yes / No [456] numeracy? Yes / No Does your scheme’s approach to accessibility take account of cultural, communication and logistical issues that arise between: [457] urban and rural areas? Yes / No [458] different regions within the country? Yes / No [459] different generations of consumers (old and young)? Yes / No [460] For consumers who cannot visit your scheme, are there any regional/local points (provided by your scheme or by other agencies) where complaints can be submitted? If so, give brief details? [461] Can consumers refer a case to your scheme free-of-charge? Yes / No If ‘no’, how much do they have to pay? [462] Do consumers have freedom of choice whether to take a dispute directly to court instead of (or without first taking it) to your scheme? Yes / No 206 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC [463] Please say which documents cover the points in section (4b), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 4c) Review of policies [464] In respect of your policies on the three issues listed in the table below: • how often does your scheme review them; and • when were they last reviewed? outreach and awareness-raising (and how they are assessed) accessibility defining and dealing with vulnerable consumers 5 FAIRNESS Processes and decisions visibly fair and equitable Does your scheme: [501] allow each side to put forward its information/arguments? Yes / No [502] allow each side to comment on any information on which the ombud will rely? Yes / No [503] actively enquire into the issues that are in dispute? Yes / No [504] give reasons to support any decision? Yes / No [505] have processes to avoid bias and prejudice? Yes / No [506] provide the complainant, at the outset, with information about the process that the case will follow? Yes / No [507] If the case is outside the jurisdiction of your scheme, or if it is inappropriate for the scheme to deal with it for any other reason, does your scheme promptly tells the complainant of that decision and the reasons for it? Yes / No Does your scheme tell the complainant at the outset: [508] whether the ombud scheme’s decision will bind the financial service provider? Yes / No [509] the complainant can withdraw at any stage? Yes / No [510] if applicable, the complainant could go to court (subject to any time limits) instead? Yes / No APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 207 [511] Does your scheme have an informal, easy-to-understand and flexible process— so that neither party needs help from a lawyer or advisor? Yes / Noo If ‘no’, please elaborate. Does your scheme: [512] handle enquiries from consumers? Yes / No [513] handle enquiries from financial service providers? Yes / No [514] prioritize urgent cases? Yes / No [515] actively help the parties to reach an agreed fair outcome (by mediation, conciliation or other means) where possible and appropriate? Yes / No [516] actively investigate, to identify and call for whatever information is relevant? Yes / No [517] obtain expert reports when these are necessary, and allow the parties to comment? Yes / No [518] issue a formal written decision, with reasons, in cases that are not settled? Yes / No On what basis does an ombud decide the merits of a case? Is it based on: [519] what the ombud considers to be fair and reasonable (equitable) in the circumstances of the case? Yes / No [520] what would happen in court? Yes / No [521] some other basis (and, if so, what)? [522] In deciding the merits of a case, can the ombud take into account (where relevant) any rights, rules, codes, standards or guidance under the Consumer Credit Act 2008? Yes / No Do ombud decisions summarize: [523] the complaint? Yes / No [524] what happened (and, if the facts are disputed, any findings of fact)? Yes / No [525] what factors and/or requirements the ombud has taken into account? Yes / No [526] whether or not the financial service provider was at fault? Yes / No [527] if it was at fault, what redress it should provide (and when)? Yes / No [528] Please say which documents cover the points in section (5), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 208 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 6 EFFICIENCY Good quality of service and value for money 6a) Quality of service [601] How does your scheme assess how many staff, with what skills and experience, it needs to operate efficiently and provide quality of service? [602] How does your scheme assess how much funding it needs to operate efficiently and provide quality of service? Is your scheme currently: [603] adequately-staffed to operate efficiently and provide quality of service? Yes / No [604] adequately-funded to operate efficiently and provide quality of service? Yes / No [605] efficient? Yes / No Do those who handle cases in your scheme have: [606] the necessary knowledge and skills in resolving disputes? Yes / No [607] a general understanding of law? Yes / No [608] knowledge of relevant financial services? Yes / No [609] appropriate training? Yes / No If you answer ‘no’ to any of 606 to 609, please elaborate. [610] Does your scheme have an internal knowledge-management system, setting out its usual approach to particular products and situations, to help provide consistency of outcome in similar cases? Yes / No [611] Does your scheme have a system to oversee the quality of the work carried out by its staff and the way in which users are treated? Yes / No [612] Is the quality system supplemented by periodic user surveys, to see what users think of the service they received? Yes / No [613] If your scheme carries out periodic user surveys, how often are these conducted? [614] If your scheme carries out periodic user surveys, are the results published? Yes / No [615] Does your scheme publish service standards? Yes / No [616] Who handles complaints about service quality? APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 209 [617] How is the process for handling complaints about service quality publicized? [618] Is the operation of your scheme reviewed at set periods by an independent party? Yes / No [619] Are the results of the review published? Yes / No [620] Please provide a link to the report of the most recent review: [621] Please say which documents cover the points in section (6a), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 6b) Value for money Does your scheme publish: [622] Its proposed budgets and business plans (for consultation)? Yes / No [623] Its staff numbers? Yes / No [624] its annual accounts? Yes / No [625] How does your scheme demonstrate it provides value for money by: • spending no more than is appropriate (economy); • spending well by comparing the resources it uses against its outputs (efficiency); • spending wisely by comparing the intended results and the actual outcomes (effectiveness); • spending fairly by ensuring its services reach all people that they are intended to (equity)? [626] Please say which documents cover the points in section (6b), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 7 OPENNESS Clear, and open to scrutiny, about its work and the lessons that can be drawn from it 7a) Annual report [701] Does your scheme publish a report, at least yearly? Yes / No [702] Is approval required from any other person/body before the report can be published? Yes / No 210 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC [703] If so, whose approval is required: Does the report include details of the numbers and types of disputes that— [704] were received? Yes / No [705] were outside the ombud scheme’s jurisdiction? Yes / No [706] the ombud scheme declined to deal with (even though in jurisdiction)? Yes / No [707] were discontinued? Yes / No [708] were resolved by the ombud scheme? Yes / No [709] were resolved in favor of the complainant? Yes / No [710] were resolved in favor of the financial service provider? Yes / No Does the report also include— [711] the time taken to resolve different types of cases? Yes / No [712] the rate of compliance with outcomes, if known? Yes / No [713] representative case studies? Yes / No [714] any systemic or significant problems identified in the financial system? Yes / No [715] your scheme’s governance arrangements? Yes / No [716] how your scheme preserves the independence of its ombud(s)? Yes / No [717] your scheme’s arrangements for control of quality? Yes / No [718] cooperation with other ombud schemes, nationally and internationally? Yes / No Does the report make clear whether your scheme provides information directly to any financial regulator about any systemic or significant problems identified in— [719] the financial system? Yes / No [720] individual financial service providers? Yes / No 7b) Other published information Does your scheme publish: [721] casework data more frequently than yearly? Yes / No [722] ombud final decisions (and do these name the financial service provider or not)? Yes / No [723] any proposed significant changes to its scope and/or process (for consultation)? Yes / No Does your scheme provide generic information to assist early resolution of complaints by— [724] publishing details of its approach to common disputes? Yes / No [725] helping to train consumer advice centers? Yes / No [726] helping to train financial service providers’ complaint departments? Yes / No APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 211 [727] Please say which documents cover the points in section (7b), indicating the paragraph, section or page numbers— unless already mentioned in the specific answer. 7c) Case information [728] Is the primary record of a case a paper file or an electronic file? Paper / Electronic [729] Does your scheme’s case-handling system record all the relevant information about each case? Yes / No [730] Is the case-handling system event-driven, so that prompts appear when actions are due? Yes / No [731] Does the case-handling system produce management data on case numbers, outcomes and time taken? Yes / No [732] Is information collected by your scheme in dealing with complaints treated as public, entirely confidential or confidential with specified exceptions? Public / entirely confidential / confidential with specified exceptions [733] If there are specified exceptions in your scheme’s constitutional rules, please say what they are: [734] If any of these specified exceptions are superseded by general privacy law, please say which: Can your scheme disclose— [735] any serious regulatory breach to the relevant financial regulator? [736] any crime to those who investigate or prosecute crime? Can your scheme publish— [737] ombud decisions (even if the parties are anonymized)? Yes / No [738] ombud decisions naming the financial service provider? Yes / No [739] complaint data about named financial service providers? Yes / No 8 LOOKING AHEAD Your views on future changes to the financial ombud system. [801] Is the current Covid-19 emergency likely to result in longer-term changes to the way in which your scheme operates? Yes / No If ‘Yes’, please explain. 212 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC [802] What are the benefits/disadvantages of the Ombud Council being created under chapter 14 of the Financial Sector Regulation Act 2017?339 [803] Are the powers of the Ombud Council sufficient to bring about any necessary improvements to the financial ombud system? [804] What improvements does your scheme think are required to the financial ombud system? [805] In the light of the National Treasury’s 2017 consultation policy document A Known and Trusted Ombud System for All:340 • Please comment on the three options in the consultation policy document. • Would some other option provide better outcomes for consumers and value for money? • What structure does your scheme favor for the future financial ombud system, and why? Please provide the data requested on the pages which follow 9 DATA Please provide the following data in respect of your scheme - Financial year ending in 2017 2018 2019 [901] Number of financial service providers covered [902] Date of financial/data year end Annual Budget [903] • Total income [904] • Total expenditure Number of staff [905] • Total full-time equivalent (FTE) [906] • Number of ombuds341 [907] • Total casework staff FTE342 [908] • Total other staff FTE343 [909] Total enquiries344 received APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 213 [910] Total complaints received345 [911] Total complaints referred to a financial service provider (FSP)346 [912] Total complaints referred to another ombud scheme or official agency. Top five other ombud schemes or official agencies to which complaints were referred (with numbers if possible): [913] • 1 [914] • 2 [915] • 3 [916] • 4 [917] • 5 [918] Total number of cases347 opened [919] Total number of cases of closed 2017 2018 2019 [920] Average number of days from receipt of a complaint to the start of consideration as a case. Average number of days from receipt of a complaint to final closure for: [921] • all cases [922] • cases settled348 [923] • cases resolved by formal decision Percentage of cases settled within the following time periods from receipt of the complaint: [924] • up to 3 months [925] • over 3, up to 6 months [926] • over 6, up to 9 months [927] • over 9, up to 12 months [928] • over 12 months Percentage of cases resolved by formal decision within the following time periods from receipt of the complaint: [929] • up to 3 months [930] • over 3, up to 6 months [931] • over 6, up to 9 months [932] • over 9, up to 12 months [933] • over 12 months 214 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Outcome of cases [934] • Withdrawn by customer [935] • Better than any redress offered by the FSP before the complaint was referred to your scheme. [936] • No better than any redress offered by the FSP before the complaint [937] was referred to your scheme. [938] • No award made but information provided to complainant • Other (please provide details) [939] Total amounts agreed or ordered to be paid to complainants (in R) APPENDIX B: QUESTIONNAIRE FOR EXISTING OMBUD SCHEMES | 215 Appendix C ISSUES PAPER FOR STAKEHOLDERS Background among the schemes. The Ombud Council oversees both industry ombuds and the statutory ombuds. It South Africa is undertaking wide ranging reforms establishes a central, single entry point for customers of its financial regulation and has recently to enter the ombuds system. A consolidated implemented its twin peaks regulatory structure. The statutory ombud structure could continue to serve Financial Sector Regulation Act 2017249 (FSR Act) as the “back-stop” ombud, hearing complaints that established the two new agencies, the Prudential fall outside the jurisdiction of the industry schemes, Authority250 (PA) as a juristic person operating with as well as newly designated financial products and the administration of the South African Reserve services. The Ombud Council and statutory ombuds Bank251 (SARB) and the Financial Sector Conduct report to the Minister of Finance. Authority252 (FSCA) as successor to the Financial Services Board. The Act was passed on 21 August Model 2: A Centralized model, 2017 and became effective on 1 April 2018. Under establishing a single statutory ombud the first phase of the reform program the two scheme regulatory agencies will regulate the financial sector A single statutory ombud scheme is established under the provisions of existing laws and within the by law, with jurisdiction over all complaints in overlay of the FSR Act.253 the financial sector. As an organization, this office should have different departments with expertise to A key component of the Twin Peaks reforms is hear complaints on different financial products and the implementation of a robust market conduct services. It reports to the Minister of Finance with framework, including effective alternative dispute governance oversight by an independent committee resolution (ADR) mechanisms for financial or Board. The Chief Ombud created under the FSR customers. In September 2017 National Treasury Act is likely best placed to take over these functions. published a consultation policy document, A Known and Trusted Ombud System for All (2017 Model 3: Industry ombuds with strong Consultation Document). This consultation oversight by the Ombud Council document reviewed the historic development of the financial sector ombuds system in South Africa, Under this model, all financial institutions that serve explained the reforms to the system resulting from the retail market are obligated to belong to an ombud the Financial Sector Regulation Act (Act 9 of 2017) scheme, either as a direct statutory obligation or as a (FSR Act), and set out three possible proposals for condition of licensing. Such schemes are established further reform of the ombuds system. through industry initiatives. No ombud schemes are established through statute. All schemes must be The 2017 Consultation Document canvassed the recognized by the Ombud Council, and are subject following three alternative Ombud system models: to oversight by the Council, including minimum standards for resolving disputes. Model 1: A hybrid model building on current FSR Act provisions The 2017 Consultation Document proposed further research be conducted into the current operation of This model makes use of both industry and statutory the ombuds system to inform the work of the new ombud schemes but encourages greater consolidation APPENDIX C: ISSUES PAPER FOR STAKEHOLDERS | 217 Ombud Council, established by the FSR Act. For this • Ombudsman for Banking Services purpose, National Treasury (NT) and the Financial Sector Conduct Authority (FSCA) have engaged the • Ombudsman for Long Term Insurance World Bank Group (WBG) to undertake a diagnostic • Ombudsman for Short Term Insurance on South Africa’s financial sector ombuds system during the first half of 2020. • Pension Funds Adjudicator WBG Team The diagnostic will also consider any gaps in the collective coverage of these schemes in relation The review team is led by Nina Pavlova Mocheva to financial products and services offered to retail from the WBG. This issues paper was prepared with customers and how far they create a coherent system specialist input from two former senior financial that is accessible to consumers. ombuds with international experience – Shane Tregillis (from Australia) and David Thomas (from Matters That Will NOT Be Covered the United Kingdom). by the Diagnostic Terms of Reference The diagnostic will not evaluate financial services providers’ internal complaints handling The terms of reference for the WBG diagnostic are arrangements (other than considering ombud as follows: schemes’ interactions with these where relevant). • Evaluate the current operations of the financial Approach sector ombuds system including against international good practice and principles. The diagnostic will undertake both primary and secondary research and consult extensively with key • Suggest opportunities for any identified stakeholders, including by means of a mission in weaknesses/gaps to be addressed by the FSR Act South Africa. The diagnostic will identify existing provisions. practices and operations of the financial sector • Consider the potential of the three proposals for ombuds system through a range of primary research. further reform set out in the 2017 Consultation This will include discussions with and information Document address any identified weaknesses/ requests to key stakeholders organized through the gaps relevant authorities in South Africa. • If relevant, Identify any other suitable models The diagnostic will also include a review of relevant documents for ombud schemes, previous Ombud Schemes That Will Be research and relevant material published on the South African financial sector ombuds system. The Covered by Diagnostic analysis and formulation of recommendations will The diagnostic will cover the following schemes: take into account existing South African reforms and proposals as described in various documents shared • Credit Ombud with the WBG or otherwise publicly available. • Johannesburg Stock Exchange Ombud The diagnostic will draw on international good practices while taking into account the specific • Ombud for Financial Services Providers (FAIS context in which Ombuds operate in South Africa Ombud) and current regulatory reforms. The diagnostic will take into account the wide range of range of 218 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC international published guidance on good practice financial ombud schemes, the statutory Ombud relevant to a financial ombud system to distil the key Council and alternative structures—in seeking to attributes for an Ombud system. ensure that any potential future scheme architecture efficiently delivers good quality outcomes for The WBG diagnostic team will use these key consumers, and represents good value for money attributes to guide its review of the existing financial for the country. ombud system in South Africa, the individual Consultation Questions Name of Institution Submitted By: Name: Email Address: Affiliation: 1) To what extent does the current ombud system in South Africa operate consistently with or have any weaknesses or gaps in relation to each of the key good practice attributes for an ombuds system set out below. • Effectiveness – consistent redress in all appropriate sectors of financial services. • Independence – visibly objective, impartial and unbiased. • Accessibility – well-known, easy to use and free for consumers. • Fairness – processes and decisions visibly fair and equitable. • Efficiency – good quality of service and value for money. • Openness – clear, and open to scrutiny, about its work and the lessons that can be drawn from it. 2) Are there any gaps and/or overlaps in the collective coverage of current Ombud schemes in relation to current and potential future financial product and services offered to retail customers? q Yes | q No If yes, please detail below 3) What improvements in the structural and institutional aspects, such as, jurisdiction and powers, legal structure, governance, funding, resourcing and staffing arrangements of individual and overall ombud framework could improve the current ombud system? 4) What improvements in the complaints resolution processes, outreach and coordination activities of ombud schemes could improve the current ombud system? 5) What are the advantages and disadvantages of the three models of a possible ombud system outlined in the 2017 Consultation document in improving the current ombud system or alternatively, what other options should be considered? 6) Are there any other significant gaps, weaknesses or opportunities that the WGB diagnostic should take into account to ensure the ombud system delivers good quality outcomes for consumers, represents good value for money for the country and remains fit for purpose into the future? q Yes | q No If yes, please detail below APPENDIX C: ISSUES PAPER FOR STAKEHOLDERS | 219 Appendix LIST OF STAKEHOLDERS D THAT RESPONDED TO THE ISSUES PAPER 1 Absa Bank Ltd. 2 Assupol Life 3 Banking Association of South Africa (BASA) 4 BASA-submitted joint response from the following member banks: • Absa • Capitec • Citi Bank • Finbond • FNB • GBS Bank • Grobank • Investec • Nedbank • Standard Bank • Ubank 5 Darrell Beghin, South African Credit and Risk Reporting Association, personal views 6 Black Sash 7 BMW Financial Services 8 Brightrock 9 Clientèle Life Assurance Company Ltd. 10 Constantia Insurance Company Ltd. Constantia Life and Health Assurance Company Ltd. Constantia Life Ltd. 11 Coronation Fund Managers Ltd. 12 Experian South Africa (Pty.) Ltd. 13 FIA (Financial Intermediaries Association of Southern Africa) 14 FirstRand Bank 15 GTC (Pty) Ltd. APPENDIX D: LIST OF STAKEHOLDERS THAT RESPONDED TO THE ISSUES PAPER | 221 16 Hollard Assurance Company Ltd. and Hollard Insurance Company Ltd. 17 Large Non-Bank Lenders Association (LNBLA) 18 Liberty Group 19 Adv. Neville Melville 20 Microfinance Association (MFSA) 21 Momentum Life Ltd. 22 Momentum Metropolitan Holdings 23 National Clothing Retail Federation (NCRF) 24 National Consumer Commission 25 National Credit Regulator (NCR) 26 New National Assurance Co. Ltd. 27 Old Mutual Life Assurance Co. 28 Professional Provident Society Insurance Co. Ltd. 29 Renasa Insurance Co. Ltd. 30 SA Home Loans (Pty.) Ltd. 31 Sanlam Personal Finance 32 Standard Bank of South Africa 33 Telesure Investment Holdings 34 Western National Insurance Co. Ltd. 222 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC Appendix E COMPLAINT DEFINITIONS BANKING NC Act Complaint is not defined. But the act says, “Any Banking Ombud: Terms of Reference person may submit a complaint concerning an Complaint is not defined. Dispute is also used for a alleged contravention of this Act to the National complaint that has not been resolved by the financial Credit Regulator.” provider. ADVICE AND INTERMEDIARY FSCA Conduct Standard 3 of 2020 (Banks) under SERVICES the FSR Act “Complaint” means an expression of dissatisfaction FAIS Ombud by a person to a bank or, to the knowledge of the The FAIS Ombud uses the definition in the FAIS bank, to the bank’s service provider relating to a Act. financial product or financial service provided or offered by that bank which indicates or alleges, FAIS Act regardless of whether such an expression of “Complaint” means, subject to section 26 (1)(a) satisfaction is submitted together with or in relation (iii), a specific complaint relating to a financial to a customer query, that service rendered by a financial service provider • the bank or its service provider has contravened or representative to the complainant on or after or failed to comply with an agreement, a law, a the date of commencement of this Act, and in rule, or a code of conduct which is binding on the which complaint it is alleged that the provider or bank or to which it subscribes; representative • the bank or its service provider’s maladministration • has contravened or failed to comply with a or willful or negligent action or failure to act, has provision of this Act and that as a result thereof caused the person harm, prejudice, distress or the complainant has suffered or is likely to suffer substantial inconvenience; or financial prejudice or damage; • the bank or its service provider has treated the • has willfully or negligently rendered a financial person unfairly. service to the complainant which has caused prejudice or damage to the complainant or which is likely to result in such prejudice or damage; or CREDIT • has treated the complainant unfairly. Credit Ombud: Terms of Reference Complaint is not defined. Dispute is used for a complaint that has not been resolved by the financial provider. APPENDIX E: COMPLAINT DEFINITIONS | 223 LONG-TERM INSURANCE Policyholder Protection Rules (Short- Term Insurance) LTI Ombud: Rules “Complaint” means an expression of dissatisfaction Subject to Rule 2.2 … every complaint which arises by a person to an insurer or, to the knowledge of the from the use by the complainant of the services of insurer, to the insurer’s service provider relating to a a subscribing member and every complaint by a policy or service provided or offered by that insurer complainant who is or claims to be a policyholder, which indicates or alleges, regardless of whether such a successor in title, a beneficiary, a life insured or an expression of dissatisfaction is submitted together a premium payer, against a subscribing member with or in relation to a policyholder query, that concerning or arising from the marketing, • the insurer or its service provider has contravened conclusion, interpretation, administration, or failed to comply with an agreement, a law, a implementation or termination of any long-term rule, or a code of conduct which is binding on the insurance contract marketed or effected within the insurer or to which it subscribes; Republic of South Africa. • the insurer or its service provider’s Policyholder Protection Rules (Long-Term maladministration or willful or negligent action Insurance) or failure to act, has caused the person harm, “Complaint” means an expression of dissatisfaction prejudice, distress or substantial inconvenience; by a person to an insurer or, to the knowledge of the or insurer, to the insurer’s service provider relating to a policy or service provided or offered by that insurer • the insurer or its service provider has treated the which indicates or alleges, regardless of whether person unfairly. such an expression of dissatisfaction is submitted JSE OMBUD: JSE Rules together with or in relation to a policyholder query, that A complaint in relation to the provision of regulated services, in which the client alleges that he has • the insurer or its service provider has contravened suffered, or is likely to suffer, financial prejudice as or failed to comply with an agreement, a law, a a result of the member rule, or a code of conduct which is binding on the insurer or to which it subscribes; • contravening or failing to comply with any instruction given by the client, or any agreement • the insurer or its service provider’s maladministration or mandate entered into with the client; or willful or negligent action or failure to act, has caused the person harm, prejudice, distress or • contravening or failing to comply with the rules substantial inconvenience; or and the directives; • the insurer or its service provider has treated the • acting dishonestly, negligently or recklessly; or person unfairly. • treating the client unreasonably or unfairly. SHORT-TERM INSURANCE PENSION FUNDS STI Ombud: Terms of Reference PFA Complaints relating to the provision within the The PFA uses the definition in the PF Act. Republic of South Africa of insurance services by an Insurer to a Policy Holder. 224 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC PF Act COFI BILL “Complaint” means a complaint of a complainant relating to the administration of a fund, the An expression of dissatisfaction by a person to a investment of its funds or the interpretation and financial institution or, to the knowledge of the application of its rules, and alleging financial institution, to the financial institution’s service provider relating to a financial product or • that a decision of the fund or any person financial service provided or offered by that financial purportedly taken in terms of the rules was in institution, which indicates or alleges, regardless excess of the powers of that fund or person, or an of whether the expression of dissatisfaction is improper exercise of its powers; submitted together with or in relation to a query by a financial customer, that • that the complainant has sustained or may sustain prejudice in consequence of the maladministration • the financial institution or its service provider of the fund by the fund or any person, whether by has contravened or failed to comply with an act or omission; agreement, a law, a rule, or a code of conduct which is binding on the financial institution or to • that a dispute of fact or law has arisen in relation which it subscribes; to a fund between the fund or any person and the complainant; or • the financial institution’s or its service provider’s maladministration or willful or negligent action or • that an employer who participates in a fund failure to act has caused the person harm, prejudice, has not fulfilled its duties in terms of the rules distress or substantial inconvenience; or of the fund; • the financial institution or its service provider has but shall not include a complaint which does not treated the person unfairly. relate to a specific complainant. APPENDIX E: COMPLAINT DEFINITIONS | 225 Appendix OVERVIEW OF COMPLAINT- F HANDLING PROCESSES OF OMBUD SCHEMES BANKING OMBUD354 basis of the finding on prospects, which they give both parties. The case-processing area handles all new complaints. - Should either party disagree with the conclusion All complaints received are logged in the Banking reached in the assessment, or should either party Ombud’s electronic case-management system. wish to submit new information that it believes Where a person has not first approached the bank, might affect the final decision, it may make they refer the complainant directly to the bank via further representations to the Banking Ombud. a direct link from the case system to the bank. The - Upon receipt of the representations from either bank has 20 business days to resolve the matter with party, a final recommendation may be issued its customer. without further consultation with either party. If the matter remains unresolved after this time, or • Cases that require further investigation and where the person has already approached the bank, clarification before a finding can be made are they open a formal case after determining handled by the Investigations Department. They • That the application for assistance has been will further investigate the matter. correctly completed; - It the investigation team believes a matter • That the complainant has followed the bank’s might be suitable for mediation, this is put to internal complaints procedures; the parties. If both parties agree, we arrange a mediation. If either party objects, we deal with • That the complainant is not satisfied with the the matter in the usual way. outcome or has not received a response within 20 working days; and - Where an adjudicator considers the matter has merits, he/she will first inform the bank of this • That the Banking Ombud determines that the view with a recommendation that the bank complaint is within jurisdiction (in doing so, it settle. If the bank agrees to the finding, the may consider representations from both parties). adjudicator will send an assessment report to the complainant with the settlement offer. This Once a formal case is opened as within jurisdiction, report summarizes the facts and findings and, the complaint is sent to the bank for a formal unless marked confidential, includes documents response. The bank has 15 days in which to respond. provided by the bank to the ombud scheme. Once the bank’s response is received, a manager will assess the case, which will then be dealt with in - If both parties accept the settlement offer, the one of two ways: matter is closed. If not, the process of negotiation will continue until they resolve the matter. • If they assess that the case has no reasonable prospects of success, the case is handled by the - If an adjudicator considers the complaint Assessment Department. Adjudication staff have does not have merit, they send a closing letter a target of 20 business days355 to prepare an setting out the facts and basis of their finding assessment report setting out the facts and the to both parties. APPENDIX F: OVERVIEW OF COMPLAINT-HANDLING PROCESSES OF OMBUD SCHEMES | 227 • If the parties do not accept the adjudicator’s view CREDIT OMBUD356 on the merits at any stage, the adjudicator will make a provisional recommendation. Should either The Credit Ombud scheme logs all complaints party disagree with the conclusion reached in the upon receipt into their electronic case-management provisional recommendation, or should either party system. They are assessed to see whether the pre- wish to submit new information that it believes ombud process with the financial provider or the might affect the final decision, it may make further credit bureau has been followed and whether they representations to the Banking Ombud. fall within the Credit Ombud’s jurisdiction. - Upon receipt of representations from either Where a complainant has not already tried to resolve of the parties, a final recommendation may be the matter directly with their credit provider or credit issued without further consultation with either bureau, they are informed of the process for doing party. so. There is no formal referral or transfer process.357 - The bank and the complainant must advise the The system generates a case number when the Banking Ombud in writing within 10 working dispute is logged, and the case is checked by the days from receiving the final recommendation senior managers. The senior managers contact the from the Banking Ombud whether they accept consumer by telephone to clarify the dispute and the terms of the recommendation. request relevant evidence and documentary proof before a case is allocated to a case manager. - The rules provide for a hearing to be conducted if both parties agree. The Credit Ombud investigates credit information and non-bank credit-agreement disputes. These disputes The Banking Ombud scheme escalates matters to a are logged against the relevant member non-bank determination or review process only if there is a credit providers; subscribers to the credit bureau; reasonable prospect of coming to a different finding everyone that lists information on the credit bureau; on the same set of facts and evidence. furniture and clothing retailers; microlenders; and Where a matter is not resolved within the vehicle and property finance lenders. investigations team, the ombud can make a formal When a dispute is opened, the complainant is determination that would be published. This rarely contacted within 48 hours to advise on the process, occurs. In 2017, 2018, and 2019, the ombudsman and financial providers have a 10-day period did not make any determinations. within which to respond to the initial request for A complainant who seeks an ombud determination information. They are given five days for a first is required to set out their reasons in writing and follow-up request and three days for any subsequent agree to be bound by a determination, other than a information requests, depending on the complexity right to seek leave to appeal to the Appeal Panel. of the dispute and ability of a provider to respond. For credit-information disputes, the scheme will The determination of the ombudsman is subject to request the relevant credit reports from all credit review by a retired judge, appointed by the board bureaus prior to the initial communication to the from a panel of three retired judges. In 2017, 2018, credit provider. and 2019, there were no review appeals. The Credit Ombud categorizes complaints as either Under Rule 27, where any matter that falls within the simple intervention complaints or more complex provisions of the NC Act is resolved, the Banking facilitated complaints. Ombud may record the resolution as an order and, if both parties consent, can lodge the order with a • Simple complaints are those where no information relevant court or the National Consumer Tribunal to is required, and a simple intervention can resolve be made as a formal consent order. the issue. An example would be a lender that has 228 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC informed the officer that they have sent instructions A ruling is binding on the member but not on the to the credit bureau to update the complainant’s complainant. Under Rule 20.3, the members of credit records. the Credit Ombud are bound by the rulings of the ombud, subject to any appeal process that may be • More complex facilitated complaints involve approved by the Credit Ombud Council. Rule 20.4 further investigation and information gathering makes clear that consumers are not bound by any leading to either an agreed outcome or the matter ruling or decision of the Credit Ombud and may being resolved on its merits. refer the matter to any other body, court, or regulator. Where the case manager cannot contact a consumer In 2017, 2018, and 2019, there were no rulings. during the investigation process, they send the consumer a text message and an e-mail and seek to If any matter within the provisions of the NC Act contact them by telephone. They send a closure letter is resolved, the Credit Ombud may record the to the consumer and every other party communicated resolution as an order and, if both parties consent, with during the complaint process within 72 hours can lodge the order with a relevant court or the of finalizing the complaint with the consumer. The National Consumer Tribunal to be made a formal case manager checks that the credit records have consent order. been corrected when required by the resolution. As a second quality-control measure, the head of case Where a matter that may be dealt with by the NCR management ascertains whether a case is ready for or National Consumer Tribunal goes to conciliation, closure by considering the case managers’ outcome mediation, or arbitration and a party does not and offering guidance should the need arise. participate in good faith in that process, the Credit Ombud may issue a certificate in the prescribed form The Credit Ombud may, where a matter has not been stating the process has failed and refer the parties to settled, make a recommendation setting out how the the NCR. matter should be resolved and the reasons for the recommendation. LTI OMBUD358 Neither a complainant nor a member is bound The ombud scheme’s staff assesses all requests to to accept a recommendation made by the Credit the office for assistance when received to check Ombud. whether they fall within the LTI Ombud scheme’s But if a member does not accept a recommendation jurisdiction. Once a complaint has been assessed that has been accepted by the complainant, the as within jurisdiction, it will be categorized with ombud may then issue a ruling. different pathways for different types of complaints. Details of the complaints are entered into the case- A complainant who does not accept a management system. A physical complaint file is recommendation may institute legal proceedings created for each case. at his or her own expense or request the ombud, or deputy ombud, to make a ruling. The following are the three types of complaint All recommendations are made in writing and categories:359 authorized by the ombud or deputy ombud. “Transfers”—This is where the complainant has In a case where a recommendation has not been not yet approached the insurer. They refer these to accepted by all parties concerned, the ombud may the insurer to respond directly to the complainant personally make a binding written ruling based on and provide the ombud’s office with a copy of the law, any applicable code, or fairness, provided their response, and they advise the complainant that all the material facts are agreed or the facts have accordingly. The insurer has 20 working days to been established on the balance of probabilities. resolve the matter with the complainant. If the insurer APPENDIX F: OVERVIEW OF COMPLAINT-HANDLING PROCESSES OF OMBUD SCHEMES | 229 settles the matter, the ombud’s office contacts the • Make final determination against the complainant; complainant by letter, e-mail, SMS text, or phone or call to establish if the complainant is satisfied or wishes to have the matter reviewed. • Make a provisional determination against the insurer after discussing it at an adjudicators’ If it is not settled, and the complainant when meeting. contacted requests, the complaint will be reviewed and handled in the same way as a full case. In At any stage of the complaint-handling process, 2019, some 73 percent360 of chargeable complaints there can be a conciliation meeting with the parties were transferred. Of these, around 28 percent were to try to resolve a complaint. settled by the insurer directly with the complainant. Adjudicators discuss cases where a determination is After 22 days, the system generates an automatic to be made against the insurer or cases that involve reminder to the insurer warning that if a response is more complex issues at a weekly adjudicators’ not received within seven days, the LTI Ombud will meeting chaired by the ombud or deputy ombud. treat the transfer as a full case. The adjudicator will provide all relevant information “Mini Cases”—These comprise simple complaints to the meeting. within the jurisdiction of the office, but insurers can In 2017, 2018, and 2019, there were 1,538, 2,006, handle them without the office’s involvement. They and 2,069 formal determinations, respectively. advise the complainant that if they do not resolve the matter with the insurer, they can revert to the Under Rule 5, material facts are determined on a LTI Ombud. balance of probabilities with due regard to the onus of proof. Where a finding on a material fact cannot “Full Cases”–These are complaints that have be resolved, the parties are told that a determination already been seen by insurers and are handled by cannot be made. The rules provide that if both parties the office from inception to finalization. The LTI agree, a hearing may be used to hear evidence to Ombud scheme sends a brochure outlining the determine a dispute of a material and conclusive complaint process to the consumer and the details fact. of the complaint to the insurer. The insurer has four weeks to respond. Under Rule 6.4, there is an appeal from a determination to an appeal tribunal. An appeal Unless a case is resolved by the first response sent by tribunal is appointed with the consent of both parties. the insurer, the complaint is allocated, depending on In practice, it is a retired judge. In determining its complexity, to either an assessor or an adjudicator. whether to give leave to appeal, the ombud considers The assessor/adjudicator calls the complainant, whether evaluates the response from the insurer, provides this to the complainant for comment, and requests • The matter appears to be of considerable public or any additional information from the insurer. Once industry interest; or all submissions have been made, and if the matter is still not resolved, the assessor/adjudicator will make • The appeal has a reasonable prospect of success. a provisional determination. If accepted by both In 2018, there were 33 applications for appeal; one parties, the matter is closed. was granted. The appeal tribunal dismissed the If a complainant is dissatisfied with the provisional appeal. In 2019, 14 complainants applied for leave determination, the case is reallocated to another to appeal, none of which was granted by the ombud adjudicator who will then review all the materials. because they did not have a reasonable basis of The adjudicator can either success. 230 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC STI OMBUD361 • Where necessary or appropriate, the insurer’s further response All complaints lodged with the STI Ombud scheme A recommendation will not be made where there is are first checked to ensure that they are short-term a genuine dispute of fact. insurance complaints and are not made by a third party. If the complainant has not lodged a prior Where either party is unhappy with the dispute with the insurer, the STI Ombud sends recommendation, they can request in writing that the complaint to the insurer as a transfer case, and the matter be escalated to the next stage of the the insurer has 21 days to resolve the dispute or resolution process. This leads to further review of respond.362 In other cases, they send the complaint the case, with further collection and exchange of to the insurer for a response within 14 days. information, leading to a formal ruling, where the decision is to dismiss the complaint (in favor of the If the insurer has resolved the complaint with the insurer), and a provisional ruling where the decision complainant within the 21-day or 14-day period, it is to support the complaint (in favor of the insured needs to inform the STI Ombud in writing, setting and against the insurer), both of which are provided out the basis on which it has resolved the matter. to both parties. The case is then closed. Where the insurer does not agree with or abide by If the case remains unresolved, the insurer is a provisional ruling, a formal ruling will be issued. required to provide a comprehensive answer to the In 2017, the total number of formal rulings was not complaint, addressing all issues in the complaint. recorded unless they were made against insurers, of Under its revamped complaint-handling process, which there was none. the STI Ombud scheme handles simpler matters not Formal rulings against insurers are published in the requiring further information under its fast-track annual reports. In 2018, the total number of formal process. Those matters requiring further information rulings was not recorded, and none was issued gathering and assessment are handled under the against insurers. In 2019, a total of 35 formal rulings standard complaints process. were made, and one formal ruling was made against A recommendation will ordinarily complete the an insurer, as published in the 2019 annual report. fast-track complaint-handling process after review As formal rulings against insurers are published, a of the information in the complainant’s founding provisional ruling is first issued to give an insurer an complaint and the insurer’s answer. In the event opportunity to abide/accept it before a formal ruling either the insurer or complainant is unhappy with is made. the recommendation and shows good cause, such Under Rule 7.3, the ombud may not make a ruling as relevant new information being provided, the where a material fact cannot be established or cannot complaint will then follow the standard complaints be resolved on a clear balance of probabilities. In process. these circumstances, the ombud tells the complainant Standard complaints are normally resolved by that they cannot assist and that alternative recourse the issuing of a recommendation following the may be sought through the courts. submission of the following sets of information or Under Rule 8 of the STI Ombud’s terms of reference, documentation by the parties: any party affected by any formal ruling or finding • The complainant’s founding complaint by the ombud may seek leave to appeal against the ruling or finding of the ombud, either in part or in • The insurer’s answer whole. The ombud shall grant leave to appeal only when the ombud is of the opinion • The complainant’s reply to the insurer’s answer APPENDIX F: OVERVIEW OF COMPLAINT-HANDLING PROCESSES OF OMBUD SCHEMES | 231 • That there is a reasonable prospect that the appeal, If a complainant contacts the MRD before contacting either in whole or in part, will succeed; and the financial provider, it refers them to the member and tells them they can escalate to the MRD if they • That the matter is one of complexity or difficulty; or remain dissatisfied. • That the ruling or finding in question involves The MRD will attempt to facilitate the resolution of issues or considerations that are of substantial the client complaint prior to its referral to the JSE public or industry interest or importance; or Ombud in terms of Rule 11.60 of the Equities Rules. • That the ruling or decision involves principles If unsuccessful, the director of the MRD will refer of law where the law may be considered to be the unresolved complaint to the company secretary uncertain or unsettled; or of the JSE. The company secretary facilitates • That the matter in dispute involves the jurisdiction the appointment of the JSE Ombud. The person of the ombudsman to entertain the dispute; or appointed as ombud must be a retired judge of the High Court of South Africa or a senior counsel. • That the issues are of such a nature that the judgment or order sought will not be of academic Rule 11.100 sets outs the processes for the JSE relevance only and will have a practical effect or Ombud’s handling of the complaint, including the result. following: If leave is not granted by the ombud, the party • Within three weeks of the dispute having been seeking leave to appeal can apply to the chair of the referred to the ombud for consideration, the appeal body for a review. The chair of the board, in claimant must set out the subject matter of the consultation with the vice chair, appoints the appeal claim in a written statement, including all the body from persons nominated by the board. There material facts, and furnish this statement, along has not been an appeal since STI Ombud instituted with all relevant documentation upon which the the process in 2013. claim is based, to the ombud. • The ombud may require the claimant to expand JSE OMBUD363 upon his/her statement of claim or provide further evidence or particulars as the ombud deems Section 11 of the JSE Equities Market rules sets necessary within such reasonable time as is out how members are to handle complaints, the specified by the ombud. process for unresolved complaints (Rule 11.60), the reporting of a dispute (Rule 11.80), and the • The financial provider must be provided with processes for consideration by an ombud. a copy of the written statement of claim by the ombud. The provider must furnish the ombud Members have four weeks to resolve a complaint. with its written response to the statement of If they cannot do so in this time period, the member claim within three weeks of having received it. must give the complainant an explanation and In addition, the provider must attach all other indicate when they will respond. evidence relating to the dispute. If the complainant remains dissatisfied with the • The ombud may require the provider to expand member’s response, they have four weeks to refer upon its response or provide further evidence or the matter to the director of JSE’s Market Regulation particulars as the ombud deems necessary within Division (MRD). If an unresolved complaint is such reasonable time as specified by the ombud referred to the MRD subsequent to this period, and and may require the claimant to provide a written such is through no fault of the complainant, the reply to the provider’s response within such matter will be considered by the MRD. reasonable time as the ombud may specify. 232 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC • The JSE Ombud will consider the merits of the This assessment includes checking the parties to dispute referred to them and make a decision the complaint, whether the complaint involves a within three weeks. financial institution, financial product, and financial service as defined in the relevant legislation. It is At the request of any party to the dispute, the ombud also at this stage that the jurisdiction of the FAIS must provide reasons in writing for his/her decision. Ombud in terms of the FSOS Act is established, (Rule 11.100.11). The proceedings are conducted where a specific complaint is not covered by any of without legal representation, unless the ombud the industry ombud schemes. decides otherwise. Where a complaint is found to fall outside the FAIS Under Rule 11.100.10, the identity of the parties, Ombud’s jurisdiction in terms of both the FAIS and the nature of the evidence, and the details of the FSOS Acts, the CCC Rep considers to which forum ombud’s deliberations and finding, and all other the complaint needs to be referred—for instance, information pertaining to the proceedings, will be any of the industry ombud schemes. Then the CCC kept confidential by all parties, unless disclosure by Rep, in a written communication signed off by the the JSE is required by law or otherwise agreed by CCC manager, informs the complainant what the the JSE, the ombud, and both parties to the dispute. mandate of the FAIS Ombud is and explains why the Any direction as to a change in behavior by a JSE complaint is being referred to another forum. The member that is deemed necessary and has caused written communication is also sent to the relevant the dispute in question will be made by the JSE ombud scheme or forum. This stage constitutes a director of market regulation as the regulator of JSE disposal of the complaint by the FAIS Ombud, and members. a customer survey form is sent to the complainant to obtain feedback on their experience of the service There were no referrals to a JSE Ombud in 2017 or received in the FAIS Ombud’s office. A survey is 2018. There was one referral to the JSE ombud in sent at all stages when a complaint is disposed of 2019, following the inability of the MRD to facilitate and is reported on in the office’s annual report. the resolution of the matter between the complainant and the JSE member. The complainant’s claim was Once the jurisdiction of the FAIS Ombud is unsuccessful. established on a preliminary basis as set out above, the complainant must satisfy the FAIS Ombud of having endeavored to resolve the complaint with FAIS OMBUD364 the FSP and must produce the final written response (if any) from the provider and the complainant’s The FAIS Ombud investigates and resolves reasons for disagreeing with the final response. This complaints in terms of the FAIS Act, the FSOS is a requirement in accordance with Rule 5(d) of Act, the Rules on Proceedings of the Office of the the Rules on Proceedings, which seeks to establish Ombud for Financial Services Providers (Rules whether there has been any attempt to settle the on Proceedings), the General Code of Conduct issue between the parties. for Authorised Financial Services Providers and Representatives (the Code), and the office’s internal The actual complaint-handling process for Complaints Procedure Manual.365 complaints that fall within its jurisdiction has the following four main stages: Once a complaint is received by the FAIS Ombud Office, a Client Care Centre Representative (CCC • Case management—initial stage Rep) registers the complaint in the case-management system. The CCC Rep then conducts a preliminary • Case management—investigation assessment so as to evaluate whether the complaint received falls within the mandate of the FAIS Ombud. • Adjudication • Reconsideration APPENDIX F: OVERVIEW OF COMPLAINT-HANDLING PROCESSES OF OMBUD SCHEMES | 233 Case Management: Initial Stage can approach the Financial Services Tribunal with an application for the matter to be reconsidered. Once the FAIS Ombud’s jurisdiction is established and the case is determined to be justiciable, a case Where a case manager has assessed the complaint manager completes an activity journal in which and is satisfied that the matter may proceed, it must an in-depth assessment of the merits of the case be established whether there has been compliance is undertaken. This includes the case manager with Rule 5(d) of the Rules on Proceedings. Where determining whether the complaint relates to the complainant has not approached the financial provider prior to submitting a complaint, the FAIS • An alleged contravention/noncompliance with Ombud facilitates this process in accordance with the FAIS and FSOS Acts and any applicable Rule 6(b) of the Rules on Proceedings by directing subordinate legislation by an authorized or the complaint to the financial provider, providing unauthorized FSP; or the required six-week period to resolve the matter • Any willful or negligent conduct by the FSP with the complainant. In the event that the matter leading to a client experiencing a financial loss or remains unresolved after the six-week period, the prejudice or to a client being treated unfairly. financial provider must provide the FAIS Ombud with a response to the allegations raised in the Where a complaint has no legal or factual basis, complaint. The Rule 6(b) letter, together with a copy the case manager can summarily dismiss it in of the complaint, is sent by fax, e-mail, or post. accordance with Rule 7 of the Rules on Proceedings, where, among other reasons If, within six weeks, the case manager receives confirmation that the financial provider has • It appears to have no reasonable prospects of resolved the matter with the complainant, written success; confirmation of the resolution from the complainant is required. • The provider has made a fair and reasonable offer that is still open; After assessment and approval is provided by the line manager, the resolution of the complaint is • The matter has previously been considered by the then confirmed in writing with both parties, and a ombud; customer survey form is again sent to them. If there • The essential subject matter of the complaint has is a monetary value to the resolution, a request of been decided in court proceedings; proof of payment may be sought from either party. • The subject matter of the complaint is pending in Where Rule 5(d) has been complied with, a case court proceedings; manager may proceed with the complaint, which may include contacting either of the parties to gather • The complaint or relief sought is of the nature sufficient detail to be able to send the complaint to that the ombud can be of no assistance to the the FSP, so they are able to respond fully to the complainant; complaint (Rule 6[c]). • The complainant does not cooperate; or Once the case manager has gathered all relevant information and assessed it, the case manager drafts • The complaint is being pursued in a frivolous, a letter in accordance with Rule 6(c) of the Rules vexatious, or abusive manner. on Proceedings informing the FSP that a complaint Upon approval by the line manager, a letter of has been brought against it and giving the financial dismissal is sent to the complainant detailing the provider an additional period of two weeks to either reasons for the decision. A customer survey form is resolve the matter by agreement or to respond to the sent to the complainant. Either party to a complaint complaint and the concerns highlighted in the Rule 234 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 6(c) letter. The Rule 6(c) letter, together with a copy • Specific documents of the complaint, is sent by fax, e-mail, or post. • A comprehensive response to the complaint Upon receipt of the respondent’s response and upon further consideration, a decision can be made at this • Any other documentation point that the matter falls to be dismissed or that it Upon receipt of the response to the Section 27(4) would be better dealt with by an alternative forum notice, the case manager considers the entire (that is, an ombud scheme), or the complaint can be case and all the supporting documentation before dismissed or referred to the correct forum with the deciding on the complaint. The case manager may reasons provided for the dismissal or referral. Where call for additional information and documents from a matter is to be dismissed, a letter of dismissal is both parties. At this stage, a decision can be made sent to the complainant detailing the reasons for the to either dismiss or refer the complaint, and the decision, after approval has been received from the process of dismissal or referral or settlement must line manager. A customer survey form is sent also to be followed as set out above, and a customer survey the complainant. form will be sent to the complainant. Either party can approach the Financial Services Alternatively, the case manager may recommend a Tribunal for the matter to be reconsidered. Where settlement either formally or informally and discuss a matter is to be referred to an alternative forum, with both parties. An informal recommendation a letter is sent to the complainant, the financial made in this way can be confirmed by e-mail. provider, as well as to the relevant ombud scheme or Where the parties have reached an agreement that other forum, signed by the line manager. A customer resolves the matter to the satisfaction of both parties, survey form is sent to the complainant. correspondence approved by the line manager Where the parties have reached an agreement that is sent to both the complainant and the financial resolves the matter to the satisfaction of both parties, provider confirming that the matter has been settled correspondence, upon approval of the line manager, or resolved in a monetary or non-monetary manner. is sent to both the complainant and the financial A customer survey form is sent to the complainant. provider confirming that the matter has been settled The FAIS Ombud will strive at all times, from the in a non-monetary manner. A customer survey form initial investigation stage up to and including the is sent to the complainant. completion of the investigation phase, to resolve the matter informally to the satisfaction of both parties. Case Management: Investigation Where a complaint has not been resolved after the Adjudication initial resolution period has expired and it appears Where a formal recommendation or determination there is merit to the complaint, a case manager will is required, this is generally issued to both parties further investigate the complaint. by the ombud under section 27(5)(c) of the FAIS A Section 27(4) notice is issued at this stage, Act. Where both parties accept a recommendation, recording that the office is officially investigating the recommendation has the effect of a final the complaint and also including a request for all determination. relevant information and documentation considered A party who does not accept the recommendation relevant to the complaint by the case manager. This must submit their reasons for refusing to accept the may include the following: recommendation within the stipulated time. Only • The financial provider’s complete file of papers if the matter remains unresolved after all attempts to settle it will the ombud issue a formal written • Answers to a list of questions posed by the case determination in accordance with section 28 of the manager FAIS Act. APPENDIX F: OVERVIEW OF COMPLAINT-HANDLING PROCESSES OF OMBUD SCHEMES | 235 The ombud or deputy ombud may issue a If the case is within jurisdiction, the case is allocated determination without first sending a recommendation to a case manager within the team responsible for (or provisional decision) to the parties. A copy of the the relevant administrator or fund. A case officer determination is sent to the FSP, complainant, and sends an acknowledgment to the complainant FSCA. In 2017, 2018, and 2019, there were 48, 49, within 48 hours. The case officer sends a letter to all and 13 formal determinations made, respectively. identifiable parties with supporting documents about the complaint and requiring a response by each party Where a determination is not appealed within a within 30 days. Where no response is received, the period of one month, a copy of the determination is case officer will send a follow-up letter giving the lodged with the clerk or registrar of the appropriate relevant parties a further 14 days to respond. court. Upon such lodging, the determination is deemed a civil judgment that can be executed upon. The responses are assessed by the case manager to determine whether Reconsideration • All relevant parties have been served;367 Under Rule 12, the parties have one month to seek leave from the ombud to apply to the Financial • Further information is required; Services Tribunal for reconsideration of the decision. To support such an application for leave, • The complaint is outside the PFA’s jurisdiction; an applicant will need to provide written reasons. • The complaint can be settled; The ombud will then consider the reasons and either grant or deny the application for leave to seek • A conciliation is required; or reconsideration. In the event an application for leave to seek reconsideration is denied by the ombud, the • It requires an adjudication. applicant may approach the tribunal to apply for a reconsideration of the decision of the ombud to If, from the responses, the complaint is assessed refuse leave. as being outside jurisdiction, a formal outside- jurisdiction letter is sent, and the case is closed on The tests applied in deciding whether to grant the case-management system. or refuse an application for leave to apply for reconsideration under section 28(5)(b) of the FAIS If, from the response, it is clear that the complaint Act are whether there is a likelihood that the tribunal has been settled by the parties, a settlement letter is will reach a different conclusion on the matter, and sent to the relevant parties, and the case is closed. whether the matter is complex. A case manager or the parties may request that a case should go for conciliation. If this happens, the services PFA366 of an external conciliator will be engaged. There are no PFA representatives involved in the conciliation Once a complaint is received by the PFA, staff process, in order to maintain independence should enters the details into the case-management system the PFA be required subsequently to adjudicate on and then reviews it to assess whether it falls within the complaint. the PFA’s jurisdiction. Where the information is insufficient to determine this, further information None of the parties involved is allowed to be legally will be requested, and the complainant will be given represented during a conciliation. At the conclusion 30 days to respond. If no response is received within of the conciliation hearing, the conciliators draft the 30 days, the complaint will be assessed as out of a report and complete a certificate of outcome jurisdiction and a closure letter will be sent to the showing the result of the hearing. (They usually complainant. do this the same day the conciliation takes place.) 236 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC The certificate of outcome is signed by the relevant Based on the information collected in this process, parties on the day. a complaint may be settled by agreement or closed as out of jurisdiction. If this does not occur, a The adjudication unit reviews and resolves determination is drafted for the adjudicator to complaints that cannot be settled. There are three review, settle, and sign as a final determination. adjudication-management teams responsible A determination is sent to the parties within two for investigating the complaints and drafting days of being signed by the adjudicator or deputy determinations. The relevant adjudicator team may adjudicator. In 2017, 2018, and 2019, 4,405, require additional time to draft a determination and 5,319, and 4,991 final determinations were issued, finalize the complaint where they are required to repectively. • Investigate and research further information; A copy of the determination is lodged with the High • Join other parties to the complaint (those parties Court. joined are given 30 days to respond to the notice In terms of section 230(1)(a) of the FSR Act, a and a further 14 days if there is no response); and person aggrieved by a determination may apply to • Request additional information from the the Financial Services Tribunal for a reconsideration complainant. (The complainant has 15 days to of the determination. The tribunal may either set respond to such a request.) aside the determination and then remit the matter to the adjudicator for further consideration or dismiss Respondents have 14 days to respond to the the application for reconsideration. complaint, and, when responses are received from other parties, the complainant has seven days in In 2017–18 and 2018–19, there were 38 and 19 which to respond to them. appeals, respectively. APPENDIX F: OVERVIEW OF COMPLAINT-HANDLING PROCESSES OF OMBUD SCHEMES | 237 Appendix G IMPLEMENTATION OF THE PROPOSED NEW OMBUD SYSTEM The proposed National Financial Ombud (NFO) is In outline: a non-statutory nongovernmental body. It does not require any legislation to set it up. • Policy decisions The South African authorities finalize and The NFO gains its powers through the recognition communicate their policy decisions in the light of of its rules by the statutory Ombud Council—so as this report. to become the single ombud for financial services and credit (other than retirement funds). • Establish provisional NFO board This builds on the existing model, under which non- The electoral college (with public- and private- statutory ombud schemes are approved, but adds sector members) selects the members of the some features in order to facilitate recognition of a provisional NFO board. single financial ombud scheme. • Establish the NFO as a corporate entity Legislation will be required to add those features The provisional NFO board establishes the NFO to the recognition regime, so that recognition of the as a not-for-profit company without members, at NFO and its rules by the Ombud Council has the which point the provisional NFO board becomes following additional consequences: the NFO board. • The NFO’s jurisdiction is automatic; it does • Develop the NFO not require a financial provider to apply for The NFO board develops the NFO’s organizational membership. design, rules, and processes, as well as a transition • The NFO is not prevented from dealing with plan for the NFO to take over from the industry matters that would be covered by the jurisdiction ombuds and the FAIS Ombud. of a statutory ombud. • Prepare legislation • Final decisions by the NFO (if accepted by the Meanwhile, the South African authorities prepare complainant) bind the financial provider and are legislation to do the following: enforceable in the same way as a court judgment. - Stage 1: Legislation will also be required in respect of the - Amend the Ombud Council’s recognition two statutory ombuds: powers and the consequences of recognition • Once the NFO has been recognized and is - Extend the PFA’s jurisdiction to cover advice/ operational, the FAIS Ombud can be wound up. intermediation relating to pension funds • The PFA is to be reformed as detailed in the - Stage 2: recommendations. - Reform the Ombud Council - Reform the governance of the PFA and rename it the “Retirement Funds Ombud” (RFO) APPENDIX G: IMPLEMENTATION OF THE PROPOSED NEW OMBUD SYSTEM | 239 - Stage 3: • Ombud Council provides ongoing oversight - Wind up the FAIS Ombud once the NFO has The Ombud Council provides ongoing oversight taken over its staff and work of the NFO and PFO in order to ensure that they continue to perform their respective functions • Ombud Council grants recognition to the NFO effectively. Once stage 1 of the legislation has been implemented, the NFO applies to the Ombud The NFO will need to liaise closely with the industry Council, which grants formal recognition to the ombud schemes, the FAIS ombud scheme, and the NFO. South African authorities in effecting a smooth transition to the new system. While the NFO is • The NFO takes over from the industry ombuds being established, it is anticipated that its staffing, and FAIS Ombud systems, and resources will be drawn from the In accordance with the previously prepared current schemes—initially including secondment of transition plan, the NFO takes over the staff and staff and dual/parallel appointments. work of the industry ombuds and FAIS Ombud. Further detail is included in figure G. Figure G. Outline Transition Flowchart, Showing Where Legislation Is Required [1] Announce policy decisions In the light of • The recommendations in this report, and • The outcome of such consultations as they think appropriate; The South African authorities decide and announce • The future shape of the financial ombud system, • The outline of any legislation intended to facilitate this, and • An immediate increase in the compensation limit of the FAIS Ombud. [2A] Create the electoral college, which selects NFO board Each of the following bodies nominates one member of the electoral college: • The FSCA • The NCR • The governing body of the Banking Ombud • The governing body of the Credit Ombud • The governing body of the LTI Ombud • The governing body of the STI Ombud • The Ombud Council The electoral college (not the listed bodies) selects the proposed members of the NFO board. No legislation required 240 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC [2B] Choose members of proposed NFO board The electoral college (by consensus) chooses the members of the NFO board—initially in a provisional capacity, as the NFO does not yet exist. The composition of the provisional board will need to meet the independence and other requirements set out in the recommendations. No legislation required [2C] Create the NFO as a corporate body The provisional board of the NFO establishes the NFO as a corporate body (probably as a not-for-profit company without members) and becomes the first NFO board. No legislation required [2D] Identify NFO senior management The NFO board identifies those who will form the senior management of the NFO. Insofar as they are already employed in the ombud system, they can hold their existing and new roles in parallel. No legislation required [2E] Start work on NFO organization and rules The NFO board and senior management start work on the following while ensuring they comply with the intended statutory recognition criteria announced by the authorities: • The organizational design of the NFO, including the following: – Personnel – Premises – Information technology – Systems – Policies – A transition plan • The rules of the NFO, including those covering the following: – Its jurisdiction – Its powers – Its processes (including appeals) – The consequences of a final decision – Accessibility – Funding No legislation required APPENDIX G: IMPLEMENTATION OF THE PROPOSED NEW OMBUD SYSTEM | 241 [3A] Amendment to Ombud Council recognition power368 Give the Ombud Council power to grant an enhanced form of recognition—so that • The recognized ombud scheme’s jurisdiction is automatic; it does not require a financial provider to apply for membership; • The recognized ombud scheme is not prevented from dealing with matters that would be covered by the jurisdiction of a statutory ombud; • Final decisions by the recognized ombud scheme (if accepted by the complainant) bind the financial provider; and • Binding final decisions by the recognized ombud scheme are enforceable in the same way as a court judgment. Legislation required • To create this enhanced form of recognition by the Ombud Council and its consequences • To add, so far as necessary, to the existing criteria that the Ombud Council must take into account when granting recognition [3B] Extend PFA jurisdiction369 Give the PFA jurisdiction over advice/intermediation relating to retirement funds (before the NFO takes over the work of the FAIS Ombud). Legislation required To give the PFA jurisdiction over advice/intermediation relating to retirement funds [4A] Finalize NFO organization and rules The NFO board and senior management finalize • The organizational design of the NFO; and • Its rules While ensuring that they comply with the statutory criteria. No legislation required [4B] Recognition of the NFO The Ombud Council grants enhanced recognition to the NFO—with the consequence that • The NFO’s jurisdiction is automatic; it does not require a financial provider to apply for membership; • The NFO is not prevented from dealing with matters that would be covered by the jurisdiction of the FAIS Ombud; and • Final decisions by the NFO (if accepted by the complainant) bind the financial provider and are enforceable in the same way as a court judgment. No legislation required additional to that mentioned at [3A] above [4C] Begin consolidation The NFO entity progressively • Takes on the staff of the industry ombud schemes and the FAIS Ombud scheme; • Completes, under the existing rules of those schemes, any old cases that were begun before the commencement date of the NFO rules; and • Handles, under the NFO’s new rules, any new cases that are begun from the commencement date of the NFO’s rules. No legislation required 242 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC [4D] Wind up industry ombud schemes Wind up the industry ombud schemes progressively, once the NFO has taken on • Their staff; and • Their existing cases. No legislation required [5A] Wind up FAIS Ombud scheme Wind up the FAIS Ombud scheme, once the NFO has taken on • The FAIS Ombud scheme’s staff; and • Their existing cases. Legislation required To wind up the FAIS Ombud scheme [5B] Implement the changes to transform the PFA into the RFO370 Complete the changes recommended by this report, including the following: • Changing the name • Giving the RFO its own independent governing body with power to – Appoint future ombuds; – Approve the budget; and – Approve processes and procedures • Enhancing the independence and security of tenure of the ombuds • On jurisdiction: – Widening the definition of eligible complainants – Amending the limitation period • Providing that review by the Financial Services Tribunal is available only where – The case raises general or systemic implications for the pension-fund sector or a significant part of it; and – There is prima facie evidence that the RFO ombud misunderstood the law, misunderstood the scope of the RFO’s jurisdiction, or did not follow a fair process. Legislation required • To change the name • To reform the governance • To amend the jurisdiction • To set the basis of the availability of review by the tribunal APPENDIX G: IMPLEMENTATION OF THE PROPOSED NEW OMBUD SYSTEM | 243 [5C] Reform the Ombud Council371 Complete the changes recommended by this report, including the following: • Enhancing the independence of its members • In respect of the chief executive: – Changing the title from Chief Ombud; – Providing for appointment by the rest of the Ombud Council; and – Enhancing their independence and security of tenure • Changing into a reserve power the current obligation to operate access centers • Scaling back its intrusive and coercive powers • Requiring it to publish an annual report Legislation required • To enhance the independence of its members and chief executive • To give the other members power to appoint the chief executive • To change the chief executive’s title from Chief Ombud • To amend its powers and require it to publish an annual report [5D] General changes372 Implement the following general changes recommended by this report: • Introduce a consistent definition of “complaint,” which includes oral complaints • Introduce consistent requirements on how financial providers should – Resolve complaints fairly; – Give a clear written decision within a specified maximum time; and – Give complainants information about the ombud system • Introduce explicit adverse consequences for financial providers that fail to – Join relevant ombud schemes; – Cooperate with the ombud schemes; and – Comply with their decisions • Make it clear that a financial provider is liable for the acts/omissions of – Its agents; and – Any predecessor provider it took over (or whose customer relationships it acquired) Legislation required • To introduce (or enable and require regulators to introduce) the following: – A consistent definition of “complaint,” which includes oral complaints – Consistent requirements on how financial providers work in relation to complaints – Explicit adverse consequences for providers that fail to work with the ombud system • To make it clear that a financial provider is liable for the acts/omissions of its agents and any predecessor provider it took over (or whose customer relationships it acquired) 244 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC [6] Reformed system in place The NFO and RFO are operating under the oversight of the Ombud Council. No further legislation required APPENDIX G: IMPLEMENTATION OF THE PROPOSED NEW OMBUD SYSTEM | 245 Endnotes ENDNOTES 1. www.obssa.co.za 2. www.treasury.gov.za/public%20comments/2020%2010%2008%20CoFI%20Bill%20(version%20 published%20for%20comment)%20(slightly%20updated).pdf 3. www.creditombud.org.za 4. www.gov.za/documents/financial-advisory-and-intermediary-services-act 5. https://faisombud.co.za 6. www.gov.za/sites/default/files/gcis_document/201409/36121a.pdf 7. www.gov.za/documents/financial-services-board-act-6-mar-2015-1042 8. www.fsca.co.za 9. www.gov.za/sites/default/files/gcis_document/201409/a37-04.pdf 10. www.treasury.gov.za/legislation/acts/2017/Act%209%20of%202017%20FinanSectorRegulation. pdf 11. www.networkfso.org 12. https://web.jse.co.za 13. www.ombud.co.za 14. www.gov.za/documents/national-credit-act 15. https://ncr.org.za 16. www.oecd.org 17. www.resbank.co.za/PrudentialAuthority 18. www.gov.za/sites/default/files/gcis_document/201409/a3-000.pdf 19. www.pfa.org.za 20. www.gov.za/sites/default/files/gcis_document/201505/act-24-1956_1.pdf The COFI Bill proposes to rename it the “Retirement Funds Act.” 21. www.treasury.gov.za/legislation/PFMA/act.pdf 22. www.resbank.co.za 23. www.osti.co.za 24. www.treasury.gov.za/public%20comments/2020%2010%2008%20CoFI%20Bill%20(version%20 published%20for%20comment)%20(slightly%20updated).pdf 25. www.gov.za/documents/financial-advisory-and-intermediary-services-act 26. www.gov.za/sites/default/files/gcis_document/201409/36121a.pdf ENDNOTES | 247 27. www.gov.za/sites/default/files/gcis_document/201505/act-25-1956_1.pdf 28. www.gov.za/documents/financial-services-board-act-6-mar-2015-1042 29. www.gov.za/sites/default/files/gcis_document/201409/a37-04.pdf 30. www.treasury.gov.za/legislation/acts/2017/Act%209%20of%202017%20FinanSectorRegulation.pdf 31. www.gov.za/documents/national-credit-act 32. www.gov.za/sites/default/files/gcis_document/201409/a3-000.pdf 33. www.gov.za/sites/default/files/gcis_document/201505/act-24-1956_1.pdf The COFI Bill proposes to rename it the “Retirement Funds Act.” 34. www.treasury.gov.za/legislation/PFMA/act.pdf 35. www.gov.za/sites/default/files/gcis_document/201505/act-68-1969.pdf 36. The comments in this report are based on the September 2020 draft (www.treasury.gov.za/ public%20comments/2020%2010%2008%20CoFI%20Bill%20(version%20published%20for%20 comment)%20(slightly%20updated).pdf). It is currently expected that the bill will be put before the National Assembly in 2021. 37. A direction means a requirement, issued by an ombud, that an FSP must put things right by doing, or not doing, something (specified by the ombud) in relation to a particular complainant. 38. By “the whole of the financial sector (including credit)” we mean the following: • Any financial services that are currently authorized, licensed, regulated, or registered under any existing financial-sector legislation • Any credit services that are currently authorized, licensed, regulated, or registered under the NC Act • Any future extension of these (whether under the COFI Bill or other legislation) 39. This name reflects the COFI Bill proposal to rename the Pensions Funds Act of 1956 (Act 24 of 56) as the “Retirement Funds Act.” If that does not happen, the reformed PFA would become the Pension Funds Ombud. 40. National Treasury says the date has been postponed from April 1, 2021, to April 1, 2022. 41. www.oecd.org/regreform/sectors/48892010.pdf 42. www.oecd.org 43. Group of 20 Finance Ministers and Central Bank Governors. 44. https://openknowledge.worldbank.org/bitstream/handle/10986/28996/122011-PUBLIC- GoodPractices-WebFinal.pdf 45. ADR = alternative dispute resolution. 46. www.gov.za/sites/default/files/gcis_document/201709/known-and-trusted-ombuds-system- allseptember2017a.pdf 47. In this report, redress means compensation (payable by the financial provider) or other remedies awarded by a financial ombud scheme in favor of a complainant. 48. In this report, enquiry means a contact with a financial ombud scheme that requests information. 49. In this report, consumer means someone who buys a financial service mainly for personal or household use, rather than for use in their trade, business, or profession. It also includes small businesses, if the financial ombud scheme covers complaints from them. 248 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 50. In this report, a complaint means an oral/written expression of dissatisfaction made to a financial provider related to its services or its complaint-handling process, where there has been some loss or material inconvenience to the complainant and a response or resolution is explicitly or implicitly expected. 51. In this report, “actively facilitating an agreed fair outcome” means the financial ombud service actively reviewing the circumstances (as an independent third party) and helping the complainant and the financial provider to agree on a fair outcome (sometimes called mediation or conciliation). 52. In this report, case means an unresolved complaint by a consumer against a financial provider that has been referred to a financial ombud scheme. 53. In this report, financial ombud means the person (or people) in a financial ombud scheme, whatever their job title, with power to make final decisions on complaints—sometimes called an ombudsman, adjudicator, arbiter, or mediator. 54. www.gov.za/sites/default/files/gcis_document/201709/known-and-trusted-ombuds-system- allseptember2017a.pdf 55. https://openknowledge.worldbank.org/handle/10986/28996 56. www.oecd.org/regreform/sectors/48892010.pdf 57. www.oecd.org/finance/financial-education/G20EffectiveApproachesFCP.pdf 58. http://documents1.worldbank.org/curated/en/169791468233091885/pdf/699160v10ESW0P0en0Vol 10Fundamentals.pdf 59. International Network of Financial Services Ombudsman Schemes (www.networkfso.org). 60. www.networkfso.org/introduction.html 61. www.networkfso.org/how-to-guides.html 62. European Union 63. https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:31998H0257 64. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:165:0063:0079:EN:PDF 65. www.ombudassociation.org 66. www.ombudassociation.org/docs/BIOAGovernanceGuideOct09.pdf 67. www.ombudassociation.org/docs/BIOAGoodComplaintHandling.pdf 68. https://treasury.gov.au/sites/default/files/2019-03/benchmarks_ind_cust_dispute_reso.pdf 69. https://treasury.gov.au/publication/key-practices-for-industry-based-customer-dispute-resolution 70. In this report, complainant means someone who makes a complaint to a financial provider or refers a complaint to a financial ombud scheme. 71. Economist Intelligence Unit, Industry Report, Financial Services, South Africa, 3rd Quarter 2019, 6. 72. Economist Intelligence Unit, Industry Report, Financial Services, South Africa, 3rd Quarter 2019. 73. https://nationalgovernment.co.za/entity_annual/1875/2019-national-credit-regulator-(ncr)-annual- report.pdf 74. www.ncr.org.za/documents/CCMR/CCMR%202019Q4.pdf ENDNOTES | 249 75. Micro Finance South Africa (https://www.mfsa.net/) represents more than 1,100 microfinance credit providers registered with the NCR and the majority of significant service providers in the sector. The service providers offer loan administration, payment systems, credit life, legal services, and credit bureaus. 76. NCR, Consumer Credit Market Report, Third Quarter, September 2019 (www.ncr.org.za/documents/ CCMR/CCMR%202019Q3.pdf). 77. Credit purchases form a large part of the sales by members of the National Clothing Retail Federation of South Africa (www.ncrfsa.org). 78. Section 13B, Pension Funds Act of 1956 (Act 24 of 56) as amended. 79. FSCA, Annual Report 2018–19. 80. PA, “An Overview of the Experience of Life Insurers in South Africa for 2018.” 81. Marzanne Kirsten, “Short-Term Insurance Industry Feedback” (PA, November 19, 2018). 82. FSCA, Annual Review 2018–19. 83. Registrar of Friendly Society, Annual Report 2017. 84. Registrar of Friendly Society, Annual Report 2017. 85. FSCA, Annual Report 2019–20, 89. 86. FSCA, Annual Report 2018–19, 31. 87. Under section 2.1 of the Code of Conduct for Administrative FSPs in the FAIS Act, bulking means the aggregation by an administrative FSP of the following: (a) Clients’ funds when buying or investing in financial products on behalf of clients, and the subsequent allocation of such financial products to each client separately in the records of the FSP (b) The financial products belonging to clients when selling such financial products on their behalf, and the subsequent allocation of the proceeds of such sale to each client separately in the records of the FSP 88. www.resbank.co.za/PrudentialAuthority 89. www.fsca.co.za 90. Sections 26, 27, 76, and 77 of the FSR Act require the financial-sector regulators (defined to include the NCR and FSCA) to cooperate and collaborate when performing their functions in terms of financial- sector laws and the NC Act and to enter into one or more memorandums of understanding to give effect to such cooperation and collaboration. 91. National Treasury, Explanatory Policy Paper Accompanying the COFI Bill, 7. 92. An ADR agent is defined by the NC Act as a person providing services to assist in the resolution of consumer credit disputes through conciliation, mediation, or arbitration. 93. www.ncr.org.za 94. Department of Trade and Industry (South Africa), Making Credit Markets Work: A Policy Framework for Consumer Credit (ncr.org.za/documents/pages/background_documents/Credit%20Law%20Review. pdf). 95. NC Act, part D, National and Provincial Cooperation. 250 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 96. US dollar equivalents of amounts in South African rand are based on an approximate exchange rate of $1 = R 15 in December 2020. 97. www.ncr.org.za/ncr-departments/complaints 98. NCR, Annual Report 2018–19, 28. 99. NC Act, section 13. 100. NC Act, section 26. 101. NC Act, section 27. 102. National Consumer Tribunal, About National Consumer Tribunal: What We Do. In 2018–19, the National Consumer Tribunal received 24,884 cases, of which 99.3 percent were debt-rearrangement applications. National Consumer Tribunal, Annual Report 2018–19, 12. 103. National Treasury, Explanatory Policy Paper Accompanying the COFI Bill. 104. National Treasury, Explanatory Policy Paper Accompanying the COFI Bill, 22. 105. National Treasury, Explanatory Policy Paper Accompanying the COFI Bill. Materials for public workshop on COFI Bill, February 22, 2019. 106. Sections 2 and 3 of the FSR Act define financial products and services.. 107. For example, in Australia, claims handling by insurance companies was not included as a regulated activity until recent reforms to the Australian Corporations Law. 108. Part 2 of the COFI Bill sets out the application of the act to prudentially regulated financial groups and financial conglomerates. 109. COFI Bill, section 3. 110. The test in the COFI Bill as currently drafted is as a positive obligation on the applicant to demonstrate to the authority that it meets the fit-and-proper and other requirements. 111. COFI Bill, chapter 3. 112. COFI Bill, section 1. 113. COFI Bill, section 1. 114. COFI Bill, section 72(1)(c)(d). 115. COFI Bill, section 72(2)(c)(d). 116. COFI Bill, section 75(b)(c)(d). 117. COFI Bill, section 72(2)(c)(d). 118. www.pfa.org.za 119. But the COFI Bill proposes to remove these exclusions and to extend the PFA’s jurisdiction to public- sector pension funds. 120. FSCA, Notice 443 of 2020, FSB Act, Levies on Financial Institutions. 121. https://faisombud.co.za 122. FSCA, Notice 443 of 2020, FSB Act, Levies on Financial Institutions. 123. www.obssa.co.za 124. www.creditombud.org.za ENDNOTES | 251 125. The Credit Ombud says its membership includes • About 70 percent to 80 percent of the non-bank credit providers; • All the large clothing and furniture retailers; • All of the members of the Large Non-Bank Lenders Association; • Twelve vehicle and housing finance bodies; • The 8 largest (of 33) credit bureaus registered with the NCR; • Certain subscribers to the credit bureaus; and • Telecommunications companies that contract with credit bureaus. 126. www.ombud.co.za 127. The LTI Ombud says its members cover 95.4 percent of the market by asset size, or 92.5 percent by premium income. 128. www.osti.co.za 129. The STI Ombud says only seven short-term insurers that sell to the public are not members. 130. Lloyd’s is an association of underwriters and funders (“names”) incorporated under the UK Lloyd’s Act of 1871 and based in London. 131. https://web.jse.co.za 132. The Banking, Credit, LTI, and STI Ombud schemes were approved on September 29, 2006. The JSE Ombud was approved on February 21, 2007. 133. Where the credit provider is a financial institution as defined in the FSOS Act, the ombud with jurisdiction can deal with the credit complaint. Where the credit provider is not a financial institution under the FSOS Act, the credit complaint may be dealt with by the NCR, an ADR agent, or relevant consumer court. 134. Fuller details in chapter 10. 135. Granted recognition as a recognized scheme under section 11 of the FSR Act. 136. NC Act approval as an ADR agent and an ombud with jurisdiction in terms of the NC Act for the resolution of disputes arising within the credit industry. 137. Main jurisdiction. 138. Backup jurisdiction. 139. The JSE is licensed to operate under the Financial Markets Act 19 of 2012 (FM Act). 140. Some complaints will be opened in one year but not closed until the next year. The figures reflect different financial years for each scheme and how they deal with timing issues in their complaint statistics. 141. In accordance with the requirements of the Pension Fund Act. 142. All JSE members are subject to the JSE complaint and dispute rules. Member numbers in each market are as follows (including some that are members of more than one market): equities, 50; equities derivative, 63; interest rate (bonds) and currency derivatives, 78; and commodities derivatives, 49. 143. This is the number of cases received in the year that went on to be considered. It includes cases that were referred to insurers under the transfer process but were not considered and processed until the next year. 252 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 144. Does not include recurring income disability benefits, annuities, and so forth. 145. Not possible to provide; calculations of benefits left to retirement fund to compute in terms of its rules. 146. The total amount of compensation does not include the value of awards made by the PFA or the value of awards made by the LTI Ombud relating to recurring income disability benefits, annuities, and so on. 147. www.gov.za/sites/default/files/gcis_document/201709/known-and-trusted-ombuds-system- allseptember2017a.pdf 148. Prescription Act (Act 68 of 1969) (www.gov.za/sites/default/files/gcis_document/201505/act-68- 1969.pdf). 149. www.gov.za/sites/default/files/gcis_document/201409/a37-04.pdf 150. The Financial Sector Regulations of 2018 contain provisions about the advertising and recruitment process for the commissioner and deputy commissioners of the FSCA, but there do not appear to be any equivalent regulations concerning the appointment of the Ombud Council and Chief Ombud. 151. The FSR Act says disqualified person means a person who (a) Is engaged in the business of a financial institution or has a direct material financial interest in a financial institution, except as a financial customer; (b) Is a member of the cabinet, a member of the executive council of a province, a member of the National Assembly, a permanent delegate to the National Council of Provinces, a member of a provincial legislature, or a member of a municipal council; (c) Is an office bearer of, or is in a remunerated leadership position in, a political party; (d) Has at any time been removed from an office or position of trust; (e) Is, or has been subject to, debarment in terms of a financial-sector law; (f) Is, or has at any time been sanctioned for, contravening a law relating to the regulation or supervision of financial institutions, or the provision of financial products or financial services or a corresponding law of a foreign jurisdiction; (g) Is, or has at any time been, convicted of (i) Theft, fraud, forgery, uttering of a forged document, perjury, or an offense involving dishonesty, whether in the republic or elsewhere, or (ii) An offense in terms of the Prevention of Corruption Act, 1958 (Act No. 6 of 1958), the Corruption Act, 1992 (Act No. 94 of 1992), parts 1 to 4, or section 17, 20, or 21 of the Prevention and Combating of Corrupt Activities Act, 2004 (Act No. 12 of 2004), or a corresponding offense in terms of the law of a foreign country; (h) Is, or has been, convicted of any other offense committed after the constitution came into effect, where the penalty imposed for the offense is or was imprisonment without the option of a fine; (i) Is subject to a provisional sequestration order or is an unrehabilitated insolvent; (j) Is disqualified from acting as a member of a governing body or a juristic person in terms of applicable legislation; or (k) Is declared by the High Court to be of unsound mind or mentally disordered, or is detained in terms of the Mental Health Care Act, 2002 (Act No. 17 of 2002). ENDNOTES | 253 152. The FSR Act says, “Statutory ombud scheme means a scheme declared by a specific financial sector law to be a statutory ombud scheme,” which includes the Pension Funds Adjudicator and the FAIS Ombud. 153. Because of the large amount of relevant material on these issues in the context of South Africa, the assessment of effectiveness in this report is divided into effectiveness of scope (chapter 8) and effectiveness of interaction and powers (chapter 9). 154. One of the written responses was a collective response from 11 banks submitted through the BASA. 155. Any gaps created by differing definitions of what constitutes a complaint are considered in chapter 9. 156. Under section 1(3)(b) of the FAIS Act, it is not an intermediary service where a bank • Acts merely as a conduit between a client and another product supplier; or • Renders a service that is regulated by a law under which the bank is authorized as a financial institution. 157. https://nationalgovernment.co.za/entity_annual/1875/2019-national-credit-regulator-(ncr)-annual- report.pdf 158. Under section 1(3)(b) of the FAIS Act, it is not an intermediary service where an insurer renders a service that is regulated by a law under which the insurer is authorized as a financial institution. 159. Under section 1(3)(b) of the FAIS Act, it is not an intermediary service where an insurer renders a service that is regulated by a law under which the insurer is authorized as a financial institution. 160. The COFI Bill proposes to give the PFA jurisdiction. 161. Under section 1(3)(b) of the FAIS Act, it is not an intermediary service where a provider renders a service that is regulated by a law under which the provider is authorized as a financial institution. 162. But not for debit cards, as no credit is involved. 163. The COFI Bill proposes to give the PFA jurisdiction. 164. Taking the middle of the range for the Banking Ombud and extrapolating the Credit Ombud and STI Ombud figures for a full year. 165. The Credit Ombud does cover someone who has been refused credit and wants to complain about a lender’s failure to provide reasons or about adverse credit-bureau information. 166. www.afca.org.au/media/1111/download 167. www.handbook.fca.org.uk/handbook/DISP/2/8.html 168. Unlike the rest of financial services, where regulators police the sector and ombud schemes resolve cases on their individual merits. Mediation is easier because providers will admit fault to an ombud where they would fear to admit fault to a regulator, and they will make concessions in individual cases without fearing that it will be turned into a standard practice. And ombud decisions are demonstrably unaffected by prudential regulatory implications. 169. The terms of reference for this report exclude evaluating complaint handling by financial providers, apart from relevant interactions with the ombud system. 170. www.gov.za/sites/default/files/gcis_document/201505/act-24-1956_1.pdf The COFI Bill proposes to rename it the “Retirement Funds Act.” 171. www.fsca.co.za/Notices/FSCA%20Conduct%20Standard%203%20of%202020%20(BANKS)- Banks.zip 254 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 172. See appendix E or the various complaint definitions. 173. International good practice suggests a minimum term of five years, with an existing ombud being told whether their term is to be renewed at least one year before the end of their current term. 174. Under the FSR Act, the recognition role passes to the Ombud Council. The criteria in section 196 of the FSR Act include whether the governing rules of an industry ombud scheme make adequate provision for monitoring and oversight of the operation of the scheme, including in respect of the terms and conditions of the engagement of the ombud, including remuneration and other benefits, and any action to terminate that engagement. 175. The Banking, Credit, LTI, and STI Ombud schemes. 176. https://saubuntu.co.za 177. Some of the amendments are not in force until April 1, 2022. 178. Section 21(2) of the FAIS Act, as amended by the FSR Act. 179. Section 22(1)(a) o fthe FAIS Act, as amended by the FSR Act. 180. Section 26 of the FAIS Act as amended by section 1A. The annotated version of the FAIS Act in the legislation section of the FSCA website says: “Proposed amendment: S. 26 to be repealed by s. 290 of Act 9/2017 w.e.f. a date to be determined by the Minister by notice in the Gazette.” The FSCA says that the form of the replacement provision has not yet been finalized. 181. Section 20(4). 182. From April 1, 2022. Until March 31, 2022, the commissioner of the FSCA is the accounting authority. Section 23(1) of the FAIS Act, as amended by the FSR Act. 183. Though, until April 30, 2021, the commissioner of the FSCA is the accounting authority and is advised by statutory and voluntary governance committees. 184. Some of the amendments to the FAIS Act under the FSR Act are not in force until April 1, 2022. 185. Some of the amendments to the PF Act under the FSR Act are not in force until April 1, 2022. 186. Section 30C(1) of the PF Act, as amended. The PFA says that, in practice, the recruitment process is conducted by the FSCA, with the minister signing off the appointerment. 187. The FSCA says no such regulations have been made. 188. Section 30R(1) of the PF Act, as amended by the FSR Act. 189. Section 30S(1) of the PF Act, as amended by the FSR Act. 190. From April 1, 2022. Until March 31, 2022 the commissioner of the FSCA is the accounting authority. Section 30T(1) of the PF Act, as amended by the FSR Act. 191. Though, until April 30, 2021, the commissioner of the FSCA is the accounting authority and is advised by statutory and voluntary governance committees. 192. Though, until April 1, 2022, the commissioner of the FSCA is the accounting authority and is advised by statutory and voluntary governance committees. Section 23(1) of the FAIS Act, as amended by the FSR Act. 193. Though, until April 1, 2022, the commissioner of the FSCA is the accounting authority and is advised by statutory and voluntary governance committees. Section 30T of the PF Act, as amended by the FSR Act. ENDNOTES | 255 194. Yes, but the company informs us that in practice it is done by word of mouth. 195. For example, some nominated specifically to represent consumers and some nominated specifically to represent the financial industry. 196. Yes, but the requirement for a special majority gives the industry members (if they act together) a veto. 197. Yes but requires two-thirds majority. 198. Yes, but the requirement for a special majority gives the industry members (if they act together) a veto. 199. Appointed by the JSE on a case-by-case basis. 200. The adjudicator can employ staff and assign duties to them, but their pay must be approved by the minister. 201. Section 183 of the FSR Act requires an independent inquiry, whose report must be submitted to the National Assembly. 202. Approved by the Finance Minister from April 1, 2022. Until then, approval is by the commissioner of the FSCA. Section 22 of the FAIS Act, as amended by the FSR Act. 203. Approved by the Finance Minister from April 1, 2022. Until then, approval is by the commissioner of the FSCA. Section 30R(1) of the PF Act, as amended by the FSR Act. 204. Smaller banks pay a levy. 205. Larger banks pay fees based on the number of cases. 206. http://documents1.worldbank.org/curated/en/732111536246467778/pdf/129778-WP-South-Africa- Retail-Banking-Diagnostic-Report.pdf 207. As reported by the ombud schemes. 208. As per StatsSA census (www.statssa.gov.za/publications/P0318/P03182018.pdf). 209. See chapter 1, section 1.2, for a fuller description of the role of a financial ombud system. 210. Section 30D of the PF Act and section 20 of the FAIS Act. 211. Relevant provisions requiring permission for legal representation include the Banking Ombud Rule 24.4, the Credit Ombud constitution clause 43.3.2, the JSE Equities Rule 11.100.9, and section 27(5) (a) of the FAIS Act. 212. Section 30K of the PF Act says that no party shall be entitled to legal representation at proceedings before the adjudicator. 213. For example: • Under section 27(5)(b) of the FAIS Act, the ombud must, in the first instance, explore any reasonable prospect of resolving a complaint by a conciliated settlement acceptable to all parties. • Under Rule 1.2(c) of the Banking Ombud terms of reference, the ombud should explore any reasonable prospect of resolving a complaint by a conciliated settlement acceptable to both parties 214. This is dealt with further in chapter 11 (Accessibility). 215. A premature complaint is one where a complainant goes straight to the ombud scheme, before raising their complaint with the financial provider. See chapter 8 on referral of premature complaints. 256 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 216. The overriding principle is that of a fair hearing and absence of bias. The requirements of procedural fairness depend on the nature of the matters in issue and what is required to enable the parties to have a reasonable opportunity to present their cases in the relevant circumstances. Any requirements need to take into account the role of the ombud as an alternative to the formal court process and in providing an informal, timely, and cost-efficient means to resolve disputes. 217. JSE Equities Rule 11.100.16. 218. Under section 30L of the PF Act, the adjudicator is required to keep a permanent record of the proceedings relating to the adjudication of a complaint and the evidence given, and any member of the public may obtain a readable copy of the record on payment of a fee determined by the adjudicator. This is also discussed further in chapter 14 (Openness). 219. Office of the Ombud for Financial Services Providers (FAIS Ombud), Manual for Access to Information, in compliance with section 14 of the Promotion of Access to Information Act of 2000. 220. See chapter 1 (Role of the Financial Ombud System). 221. The Banking Ombud reports its figures based on the following categories: complaint fully upheld (17.75 percent); only proportion of complaint upheld (5.12 percent), complaint not upheld (72.01 percent). 222. This figure does not include the outcomes from complaints resolved by providers during the transfer process. Including transfer cases, the figure is 41 percent (LTI Ombud, Annual Report 2019, 15). 223. The FAIS Ombud in its annual report does not report on a complaint-uphold rate. Rather, it reports consumer satisfaction levels based on the customer survey forms it sends out for every closed complaint. 224. The PFA reports that, where there was a formal adjudicator decision, 88 percent were in favor of complainants (Annual Report, 3). 225. Section 43.3 of the constitution of the Credit Ombud requires members of the Credit Ombud to abide by the rulings of the ombud, subject to any appeal process that may be approved by the Credit Ombud Council—but no appeal process has been established by the council. 226. See chapter 4, section 4.3. 227. Under section 218 of the FSR Act, a decision subject to appeal to the Financial Services Tribunal includes a decision of a statutory ombud in terms of a financial-sector law in relation to a specific complaint by a person. 228. Under section 234(1) of the FSR Act, in proceedings on an application for reconsideration of a decision, the tribunal may set the decision aside and remit the matter to the decision maker for further consideration. 229. The Banking Ombud scheme’s Rule 7.4 provides that, where a complainant does not agree with a recommendation, they can either seek redress in the courts or a request the ombud to make a final determination. Under Rule 7.5, one of the preconditions for the ombud making a ruling is that the complainant agrees to be bound by the ombud’s decision, subject to the right of review by the review panel. 230. The rules of LTI Ombud and STI Ombud schemes make clear that an ombud decision is binding only on the member but not the complainant. This means the complainant preserves their right to seek redress in the courts. 231. In the LTI Ombud, the ombud appoints the appeal body with the consent of the parties. Only if agreement is not reached does the appointment go to the council. ENDNOTES | 257 232. Under the Banking Ombud scheme rules, this is captured under the provision for a test case in Rule 14. The ombud may, on the request of a bank or on his/her own initiative, refer a matter that may have important consequences for the banking industry in general or that may involve an important or novel point of law or a contentious banking practice or policy to the appeal body as a test case, in order to obtain a ruling. 233. A key reason in the case of the Banking Ombud is that the ombud rarely makes a formal ruling. We have been informed by the Banking Ombud that a ruling by the ombud is seen as an internal appeal mechanism from a recommendation subject to similar leave to review grounds as the appeals panel. 234. Credit complaints to the National Credit Regulator are subject to review by the National Credit Tribunal. 235. FSR Act, section 30D(2)(a). 236. www.gov.za/sites/default/files/gcis_document/201409/a3-000.pdf 237. For example: • Australian Financial Complaints Authority Rule C.2.2(f) (www.afca.org.au/about-afca/rules-and- guidelines) • UK Financial Ombudsman Service Rule DISP 3.4.2 (www.handbook.fca.org.uk/handbook/ DISP/3/?view=chapter) 238. As noted, the exception is the JSE Ombud. 239. Discussed further in chapter 13 (Efficiency). 240. Unless specifically referred to, the analysis in this chapter does not cover the JSE Ombud. That is because most complaints are resolved by the JSE’s Market Regulation Division, and the JSE Ombud has handled only one case in the last three years. 241. See chapter 1, section 1.2, for a summary of the financial ombud process. 242. LTI Ombud, Annual Report 2019, 32. 243. While the PFA previously did not have referral process, it has recently commenced doing so. 244. The complainant has three weeks to provide the JSE Ombud with written details of their complaint. The other party then has three weeks to provide a written response to the statement of claim. 245. See chapter 9, section 9.4 (Referrals by Ombud Schemes to Providers), for a description of this process and the number of complaints involved for each ombud scheme. 246. For example, JSE Equities Rules, Rule 11.110. 247. FSCA, Notice 443 of 2020, FSB Act, Levies on Financial Institutions. 248. PFA, Annual Report 2019–20, 19. 249. A review of the openness of the ombud schemes is in chapter 14. 250. Reduced from 25 in November 2019. 251. 5,801, if transfer cases are included. 252. The Credit Ombud’s annual review reports the average cost as R 3,250 per dispute. 253. This is calculated by dividing the total budget by the number of closed cases (full cases and reviews). It differs from the figure of R 4,086 on page 3 of the LTI Ombud’s Annual Review 2019. That figure is calculated on the basis of 5,801 closed cases (which includes transferred cases, charged at 50 percent). 258 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 254. 157, if transfer cases are included. 255. 90.76 percent, if transfer cases are included. 256. PFA, Annual Report 2018–19. Of those case that were settled, 71 percent did so within six months. Of cases resolved by formal decision, 19.94 percent did so in six months. 257. Some of the schemes told us they had 100 percent compliance, though they did not report this. 258. All of the schemes say they can make such reports, but only some report publicly whether they do. 259. Under section 10(1) of the FSOS Act, one of the criteria for recognition was that their process enabled them to report to financial regulators matters that may be of interest to them. 260. https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/684B68A7-B768-465C-8214- E3A007F15A5A/IoDSA_King_IV_Report_-_WebVersion.pdf 261. Such as new and emerging issues and data on numbers and types of cases received and resolved. 262. Section 177. 263. Sections 194 to 197. 264. Section 201. 265. Sections 198 to 200. 266. Section 202. 267. Section 205. 268. Section 206. 269. Section 208. 270. Section 214. 271. Section 211(1). 272. Section 209. 273. This problem is explained in chapter 8 (Effectiveness of Scope). 274. The Ombud Council’s section 211(1) power to designate one or more schemes does not apply where the activity is already covered by a statutory or industry scheme. 275. Financial customer means a person to, or for, whom a financial product, a financial instrument, a financial service, or a service provided by a market infrastructure is offered or provided, in whatever capacity, and includes (a) a successor in title of the person and (b) the beneficiary of the product, instrument, or service. 276. Such as an administrative financial penalty or, in a severe case, revocation of the provider’s authorization or license. 277. See chapter 8 for a more detailed assessment. 278. See chapter 9 for a more detailed assessment. 279. See chapter 10 for a more detailed assessment. 280. See chapter 11 for a more detailed assessment. 281. See chapter 12 for a more detailed assessment. 282. See chapter 13 for a more detailed assessment. ENDNOTES | 259 283. See chapter 14 for a more detailed assessment. 284. Such as new and emerging issues and data on numbers and types of cases received and resolved. 285. See chapter 15 for a more detailed assessment. 286. For example, before the Australian financial ombud system was consolidated, there were common dispute benchmarks and scheme approval critiera set by the financial regulator, along with a number of attempts at establishing a common entry point, including at one stage a single call center operated by the regulator. These arrangements did not result in consistent practices among the various schemes. Both consumer organizations and the regulator considered these had been largely unsuccessful and that the better response was to promote scheme rationalization. See the submissions by the Joint Consumer Groups and by the Australian Securities and Investments Commission (the financial regulator) to the Review of the Financial System External Dispute Resolution Framework, October 2016 (https:// treasury.gov.au/consultation/dispute-resolution-and-complaints-framework-issues-paper). 287. https://publicappointmentscommissioner.independent.gov.uk 288. www.legislation.gov.uk/ukpga/2000/8/schedule/17, paragraph 3(2) 289. www.legislation.gov.uk/ukpga/2000/8/schedule/17, paragraph 4(2) 290. This is a corporate form already used by the Consumer Goods and Services Ombud. 291. For example, when the consolidated Financial Ombudsman Service was created in the United Kingdom, the existing Banking Ombudsman, Building Societies Ombudsman, Insurance Ombudsman, and Pesonal Investment Authority Ombudsman were all appointed also as ombuds in the new Financial Ombudsman Service and continued to fulfill both roles simultaneously while the transition from the old schemes to the new one was completed. 292. For example, when the consolidated Financial Ombudsman Service was created in the United Kingdom, the existing Banking Ombudsman, Building Societies Ombudsman, Insurance Ombudsman, and Pesonal Investment Authority Ombudsman were all appointed also as ombuds in the new Financial Ombudsman Service and continued to fulfill both roles simultaneously while the transition from the old schemes to the new one was completed. 293. A customer borrows from a lender. A guarantor is someone who gives the lender a guarantee to repay the loan if the customer fails to pay. A surety is someone who gives the lender a charge over an asset against which the lender can claim if the customer fails to pay. Neither a guarantor nor a surety is a customer of the lender. 294. All JSE members are subject to the JSE complaint and dispute rules. Member numbers in each market are as follows (including some that are members of more than one market): equities, 50; equities derivative, 63; interest rate (bonds) and currency derivatives, 78; commodities derivatives, 49. 295. Reduced from 25 in November 2019. 296. Number of people, whatever their job title, with power to make final decisions on cases—sometimes called an ombudsman, adjudicator, arbiter, or mediator. 297. Professionals, including the adjudicator and deputy adjudicator. 298. Number of staff members (other than ombuds) involved in answering enquiries, handling complaints, and/or reviewing cases. 299. Including the executive assistant to the deputy adjudicator. 260 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 300. Number of staff members not involved in casework, such as IT, human resources, finance, media, and other support functions. 301. Enquiry = a request for information or assistance that does not meet the definition of complaint under the scheme’s rules. 302. If the Banking Ombud establishes that a matter is for another ombud/agency, it responds to the complainant, forwards the matter to the other ombud/agency, and requests that they correspond directly with the complainant. Complaints received that do not fall within jurisdiction are not opened as formal cases and are not counted in the numbers of complaints received/opened. 303. Complaint = a specific complaint (expression of dissatisfaction) against a named FSP (whether or not in jurisdiction). 304. The total for the JSE Market Regulation Department was 88 complaints received and 84 closed. Only one complaint was referred to the JSE Ombud. 305. Complaints that are referred to FSPs because the complainant has not first complained to the FSP. 306. The FAIS Ombud says that its process does involve sending complaints to the FSP where the FSP has not had a chance to review it, but it does not keep statistics on these numbers. It does not record this because Rule 6(b) of its Rules of Proceedings allows it to fulfill this role on the complainant’s behalf. Under the FAIS Ombud rules, a referral means a complaint that does not fall within the FAIS Ombud’s jurisdiction but is sent to the FSP—for example, a cancellation request, withdrawal request, or any service sent to the ombud instead of the FSP. 307. CGSO = Consumer Goods and Services Ombud. 308. GEPF = Government Employees Pension Fund. 309. MIO = Motor Industry Ombud. 310. CMS = Council of Medical Schemes. 311. Case = a complaint that falls within the ombud scheme’s jurisdiction/scope and the scheme attempts to resolve. 312. This is the number of cases received in the year that went on to be considered. It includes cases referred to insurers under the transfer process but were not considered and processed until the next year. 313. Opened by the JSE Market Regulation Department. 314. Closed by the JSE Market Regulation Department. Only one complaint was referred to the JSE Ombud. 315. Seventy-eight days (the period for submission requirements by the complainant and the provider) + 12 days (for the ombud to reach a decision) = 90 days. 316. Settled = resolved by an outcome agreed by both parties facilitated by the ombud scheme (through mediation, conciliation, or other means). 317. All formal cases opened fall within the time frames above, whether the bank settled it after the Banking Ombud opened a formal case or whether a finding was made. 318. An example of how the different bases of data classification by different schemes prevent accurate comparisons. 319. FAIS Ombud stats are not currently maintained as detailed in questions 934–938. 320. www.gov.za/sites/default/files/gcis_document/201709/known-and-trusted-ombuds-system- allseptember2017a.pdf ENDNOTES | 261 321. http://siteresources.worldbank.org/EXTFINANCIALSECTOR/Resources/Good_Practices_for_ Financial_CP.pdf 322. www.oecd.org/regreform/sectors/48892010.pdf 323. www.oecd.org/finance/financial-education/G20EffectiveApproachesFCP.pdf 324. http://siteresources.worldbank.org/EXTFINANCIALSECTOR/Resources/Financial_Ombud_Vol1_ Fundamentals.pdf 325. International Network of Financial Services Ombudsman Schemes (www.networkfso.org). 326. www.networkfso.org/introduction.html 327. www.networkfso.org/how-to-guides.html 328. European Union. 329. https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:31998H0257 330. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:165:0063:0079:EN:PDF 331. www.ombudassociation.org 332. www.ombudassociation.org/docs/BIOAGovernanceGuideOct09.pdf 333. www.ombudassociation.org/docs/BIOAGoodComplaintHandling.pdf 334. https://treasury.gov.au/sites/default/files/2019-03/benchmarks_ind_cust_dispute_reso.pdf 335. https://treasury.gov.au/publication/key-practices-for-industry-based-customer-dispute-resolution 336. The proposed Conduct of Financial Institutions Bill (COFI Bill) defines a complaint as “an expression of dissatisfaction about a financial product or service where the financial service provider has: not complied with an agreement, a law, a rule or a code of conduct; engaged in maladministration or some wilful or negligent action or failure resulting in harm, prejudice, distress or substantial inconvenience; or treated the person unfairly.” 337. www.gov.za/sites/default/files/gcis_speech/201812/Conduct%20of%20Financial%20 Institutions%20Bill_0.pdf 338. For this purpose, someone “associated with the financial industry” means anyone who • Works in a financial service provider, or has done so in the previous three years; • Works in an association of FSPs or has done so in the previous three years; or • Has (or has a close family member with) a beneficial interest of more than 5 percent in an FSP. 339. www.gov.za/documents/financial-sector-regulation-act-9-2017-english-sepedi-22-aug-2017-0000 340. www.gov.za/sites/default/files/gcis_document/201709/known-and-trusted-ombuds-system- allseptember2017a.pdf 341. Number of people, whatever their job title, with power to make final decisions on cases—sometimes called an ombudsman, adjudicator, arbiter, or mediator. 342. Number of staff members (other than ombuds) involved in answering enquiries, handling complaints, and/or reviewing cases. 343. Number of staff members not involved in casework, such as IT, human resources, finance, media, and other support functions. 262 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC 344. Enquiry = a request for information or assistance that does not meet the definition of complaint under the scheme’s rules. 345. Complaint = a specific complaint (expression of dissatisfaction) against a named FSP (whether or not in jurisdiction). 346. Complaints that are referred to FSPs because the complainant has not first complained to the FSP. 347. Case = a complaint that falls within your scheme’s jurisdiction/scope and that your scheme attempts to resolve. 348. Settled = resolved by an outcome agreed by both parties facilitated by your scheme (through mediation, conciliation, or other means). 349. www.gov.za/documents/financial-sector-regulation-act-9-2017-english-sepedi-22-aug-2017-0000 350. www.resbank.co.za/PrudentialAuthority 351. www.resbank.co.za 352. www.fsca.co.za 353. National Treasury, Explanatory Policy Paper Accompanying the COFI Bill, 7. 354. Banking Ombud, Annual Report 2019; Brochure on Stages of the Complaints Resolution Procedure; Terms of Reference, Part 2, Operational Procedures. 355. It is set as a target requirement for the adjudication staff. However, this is not always possible, as caseloads fluctuate. 356. Credit Ombud, Terms of Reference; “Process Flow-CI Matters” (diagram), “Process Flow-NBC Matters” (diagram), and “Complaints Resolution Procedure” (diagram) in Process Flow: Internal Directives on Processes and Procedures (July 12, 2020). 357. The Credit Ombud retains statistics on the referrals made. A “general enquiry” number is generated for the referral. 358. LTI Ombud, Rules; Procedures Manual; “Process Flow Map” (diagram); Complaints about Long Term Insurance (brochure); Internal Document on Quality Control Procedures. 359. LTI Ombud, Annual Report 2019, 10. 360. LTI Ombud, Annual Report 2019, 10. 361. STI Ombud, Terms of Reference; “Complaint-Handling Process” (diagram); Process Manual; Training Manual; Workflow (Homeowners); Workflow (Motor); Complaints Process (brochure). 362. The STI transfer process commenced at the time of its soft merger with the LTI Ombud. 363. JSE Equities Market Rules, Section 11, Complaints and Disputes. 364. FAIS Ombud, Complaints Procedure Manual, Version 5, October 2016; Rules on Proceedings of the Office of the Ombud for Financial Services Providers; FAIS Act; “How to Complain, Complaints Handling Process” (graphic). 365. FAIS Ombud, Complaints Procedure Manual, Version 5, October 2016. 366. PFA, Case Management Workflow Document, August 2019; PF Act; Complaints Procedure Brochure, Procedures for Lodging a Complaint. 367. Section 30G(d) of the PF Act allows the PFA to join a party at any stage before finalizing a case. ENDNOTES | 263 368. In respect of the Ombud Council: • This change [3A] is needed soon, so the Ombud Council is ready to recognize the NFO. • Other changes [5C] could be made a little later if incorporating them soon would delay this change. 369. In respect of the PFA: • This change [3B] is needed soon, before the work of the FAIS Ombud is taken over by the NFO. • Other changes [5B] could be made a little later if incorporating them soon would delay this change. 370. Could be done at an earlier stage if the legislative timetable allows. 371. Could be done at an earlier stage if the legislative timetable allows. 372. Could be done at an earlier stage if the legislative timetable allows. 264 | SOUTH AFRICA FINANCIAL OMBUD SYSTEM DIAGNOSTIC