The jurisdiction of the FAIS Ombud has been questioned on a number of occasions, notably in the current High Court case between the Ombud and Deeb Risk, and yet again in a later determination involving Lifeforce Financial Services.
The Ombud’s interpretation of the FAIS Act has become the “Dummies guide” to the industry of how a very complicated new piece of legislation works in practice.
In the Lifeforce case, the respondent felt that there were far too many factors involved for the case to be resolved on a “correspondence only” basis:
‘Furthermore, it appears that Ms Janssens’ case is that I acted negligently when recommending that she purchase a Life Account policy. This is a question on which expert input is required and which is best determined by way of court proceedings.’ ‘…there is a material dispute of fact between myself and Ms Janssens regarding the facts of this matter. I note that Ms Janssens’ complaint is not made under oath but has in fact been prepared by her attorneys. I submit I have put up a competing factual version that at least establishes a prima facie defence to the complaint made by Ms Janssens. In the circumstances, it appears the matter will still need to be resolved by way of cross-examination and the leading of evidence. For these reasons it appears to me that this matter is not one appropriate for determination by the Ombud and should be referred to a court where our conflicting versions can be determined with the benefit of cross-examination.’
The respondent accepted that the record of advice did not go into great detail to reflect the basis on which the recommendation was made, but contends that it cannot be said that his failure to keep records caused any financial loss.
It also had to be borne in mind that the losses were sustained during what is now referred to as the ‘global credit crunch’, and it was this event that remains responsible for the loss and not his record keeping.
In her response, the Ombud quoted from Section 27(3) (c) of the FAIS Act which states: ‘The Ombud may on reasonable grounds determine that it is more appropriate that the complaint be dealt with by a Court or through any other available dispute resolution process, and decline to entertain the complaint.’
The Code in sections 3 (2) (a) (i) to (iii) enjoins providers to record ‘such verbal and written communications relating to a financial service rendered to a client….’ In section 9 (1) the Code demands that a provider maintain the record of advice furnished to a client as contemplated in section 8. Such record must reflect the basis on which the advice was given, and in particular, a brief summary of the information and material on which the advice was based and the financial product or products considered.
The records contemplated in sections 3 (2) (a) and 9 (1) of the Code are there to protect the client but also the provider as proof of compliance with the FAIS Act. The record of advice in particular serves as a critical piece of evidence. In instances where a Respondent has failed in his obligations to keep a record of the advice rendered, he cannot and should not be allowed to raise an argument that there is a dispute of fact. To do so, would be to allow the very mischief which the legislature would have had in mind when making such a record mandatory in the first place.
On the other hand this Office will, where there is a material dispute of fact, not hesitate to refer the matter to other fora. It must also be added that the decision to refer a complaint to other fora is not a decision that will be made lightly.
The objective of the Ombud is to consider and dispose of complaints in a procedurally fair, informal, economical and expeditious manner…’. Complainants to the Office may already have suffered a considerable economic loss, thereby depriving them of the means of accessing the courts; that is even assuming that they were in such a financial position in the first place.
That such complaints should be dealt with in an economical and expeditious manner stands to reason, and to this end the legislature has seen fit to prescribe a detailed list of disclosure and record keeping requirements that must be complied with when rendering a financial service.
…in correspondence directed to Respondent on the 8th September 2009, he was requested to provide copies of his ‘complete file of papers relating to this matter. The relevance hereof is that surrounding documentation/ correspondence can go a long way to shore up a Respondent’s version when the required compliance documentation is less than optimal. Save for the documentation which I will specifically refer to, there is nothing which might be of assistance in the matter at hand.
It would appear then that the Ombud is of the view that, had the Respondent kept proper records as required, it would not have been necessary to involve another forum.
There are further options available to the Respondent. The first is to refer the matter to the FSB’s Appeal Board, which comprises legal experts under the chairmanship of a retired judge. If still unhappy, he can follow the route taken by Deeb Risk, and go to the High Court.
This case again highlights the need for thorough record keeping. It will seldom be needed where a client’s expectations are met or exceeded, but in these uncertain times, one can never be too careful.
In Thursday’s Moonstone Monitor, we will discuss the calculation of the fine imposed, and also reflect on other such determinations, the fairness of which we question.