Secondary

Complaints and Compensation for Clients

Alan Holton of Compliance Monitoring Services writes:

I read the comments in your “Moonstone Investment Indicators” of the 23rd March (LT Ombud Makes Compensation Rulings) regarding the principles that lie behind awards made by the Long-term Ombud.

It brought to mind some of the changes we can expect to see once the Financial Sector Regulation Bill (FSRB) is signed into law.

In particular, some sweeping changes have been made to what constitutes a complaint against a financial services provider and also the nature of the awards that can be made when a complaint is upheld.

The current definition of a complainant in the FAIS Act, 2002 is limited to a specific client who submits a complaint to the Ombud.

A complaint is defined as a specific complaint relating to a financial service rendered by FSP or a representative to the complainant and in which complaint it is alleged that the FSP or representative:

  • has contravened or failed to comply with a provision of this Act and that, as a result thereof, the complainant has suffered, or is likely to suffer, financial prejudice or damage; or
  • has wilfully or negligently rendered a financial 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
  • has treated the complainant unfairly.

The FSRB includes amendments to several statues – including the FAIS Act, 2002. The specific amendment I am thinking about is to the definition of a complainant and to a complaint.

Once the amendments are finalised, a complainant will mean a specific client who submits a complaint to a financial services provider – not to the Ombud.

And a complaint will mean an expression of dissatisfaction submitted by a complainant, indicating that-

  • the provider or representative has contravened or failed to comply with a provision of this Act or an agreement;
  • the provider’s or representative’s maladministration, or wilful or negligent action or failure to act, has caused the complainant harm, prejudice, distress or substantial inconvenience; or
  • the provider or representative has treated the complainant unfairly

In other words, a complaint will include any expression of dissatisfaction regarding any alleged maladministration, action or inaction as a result of which the complainant claims harm, prejudice, distress or substantial inconvenience.

In terms of the RDR regulatory proposals, effective and in-depth systems will have to be in place to handle all such complaints.

And then, as a final comment on this issue, I note that the FSRB repeals all provisions that establish the office of the FAIS Ombud and a new Ombud for Financial Services Providers is established.

The Bill then provides that in making any determination, the Ombud for Financial Services Providers may award the complainant an amount as fair compensation for material inconvenience, distress or any financial prejudice, loss or damage suffered, plus the reasonable costs of submitting the complaint.

These amendments will result is a very different situation from the current one. It remains to be seen just how much will be done in anticipation of these changes and the state of readiness that will prevail once implemented.

Alan Holton
Compliance Monitoring Systems CC

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