New unified ombud scheme to launch next year

New unified ombud scheme to launch next year

A financial ombud scheme that merges the non-statutory long-term insurance, short-term insurance, banking and credit ombud schemes will become operational early next year.

According to information released by the Ombud Council, which is overseeing the transformation of the financial ombud system in South Africa, the four existing schemes will form the four divisions of the National Financial Ombud Scheme of South Africa (NFO) and operate under a common set of rules.

This is in accordance with changes in financial legislation over the past six years that have sought to improve outcomes for consumers of financial products and services. The Financial Sector Regulation Act of 2017 signalled the transition to a “treating customers fairly” regulatory environment. It gave effect to the formation of the Ombud Council in November 2020, which, in turn, paved the way for the NFO.

Two statutory schemes – the Ombud for Financial Services Providers, constituted under the Financial Advisory and Intermediary Services (Fais) Act; and the Pension Funds Adjudicator, constituted under the Pension Funds Act – will remain separate entities.

The NFO will be a newly registered non-profit company which will retain the expertise of the individual schemes. There will be a chief ombud and four divisional ombuds.

Benefits for consumers

The amalgamation will remove inconsistencies in the ways the schemes dealt with consumers and ensure that complaints don’t fall through the cracks.

“The main purpose, mission and manner of dispute resolution will not differ significantly from the way the four existing schemes operated in the past,” the Ombud Council says.

The mandate of the NFO is to “provide individuals, small businesses and financial customers or beneficiaries with a fair, expeditious and effective dispute resolution process, free of charge. It provides an informal, easily accessible alternative to other remedies, such as court proceedings.”

It is expected the scheme will, as the separate schemes did in the past, influence how financial companies operate generally.

“Through their investigations and findings, the four previous schemes have, on numerous occasions, caused providers to change contract wording, implement new procedures, do more to alert customers to risks, and change financial practices for the better,” the Ombud Council says.

A major advantage over the courts for consumers is that an ombud can resolve a complaint based not only on factual evidence and the letter of the law, but also on fairness (equity).

The Ombud Council says that in addition to the normal assessment of fairness in each case, the NFO will actively identify vulnerable consumers and ensure that their specific circumstances and vulnerabilities are brought to the financial company’s attention.

In essence, the complaints process is as follows:

• After exhausting internal complaint mechanisms with a provider, a consumer may lodge a complaint, which will be directed to the appropriate division.

• The divisional ombud’s office will contact the provider involved for a response.

• After possible further investigation, including obtaining expert advice, the ombud will issue a recommendation to the parties on whether the complaint should be upheld or dismissed and any appropriate remedies.

• If either party rejects the recommendation, a ruling may be issued, which may be provisional or final.

• If a provisional ruling is challenged, after further deliberation the ombud may make the ruling final. A final ruling is legally binding.

• Either party may apply to appeal the ruling. If successful, the appeal will be heard by a designated Appeal Tribunal consisting of three members who are retired judges or senior counsel.

Jurisdiction and monetary limits

The NFO will deal with matters involving banks, non-bank credit providers, and short-term and long-term insurers, and on information held by credit bureaus. The Fais Ombud will continue to deal with complaints about financial advice and the Pension Funds Adjudicator with complaints related to retirement funds. Complaints about debt counsellors, currently not dealt with by the Credit Ombud, must be directed to the National Credit Regulator.

The NFO’s monetary limits are, in summary:

• Banking complaints (including bank credit complaints): R5 million complaint value and R10 000 for unnecessary delays by the participant. Small businesses may make use of the complaints service if their annual turnover is below R10m.

• Non-bank credit complaints: R5m complaint value. Small businesses may make use of the complaints service if their annual turnover is below R10m.

• Non-life insurance complaints: R10m for homeowners or buildings cover; and R5m for all other types of cover. The limits apply to commercial and personal lines insurance.

• Life insurance complaints: No monetary limits.

Apart from an award made in relation to a complaint, any division of the NFO may award up to R50 000 as compensation for material inconvenience, distress or financial loss caused by an error, omission or maladministration (including manifestly unacceptable or incompetent service).

Until the NFO is operational, complaints may be directed to the individual ombud schemes.

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