“When I read about the evils of drinking, I gave up reading.” – Henny Youngman
This reflects how I feel lately when scanning a variety of publications every day to stay abreast of developments in the country and the industry.
Mark Bechard’s recent article on the latest decision by the Financial Services Tribunal (FST) concerning a determination by the FAIS Ombud regarding a Sharemax investment discusses one of those recurring themes that really should have been addressed and finalised years ago.
FAIS Ombud determinations on property syndication complaints
The FAIS Ombud’s mission is to promote consumer protection and enhance the integrity of the financial services industry by the fair and expeditious resolution of complaints. It is also afforded a more informal approach.
This particular case concerns an investment made in 2009 which came to naught in 2010 and was ruled on by the Ombud nine years later. The complaint was laid in 2011, and after an initial enquiry to the FSP, was only followed up by the Ombud’s office in 2016 and determined three years later.
In the Malherbe case, the tribunal found that the adviser’s failure to comply with the General Code of Conduct amounted to factual causation, but that legal causation resulted from the intervention of the South African Reserve Bank (SARB). This view had already been expressed in several other cases, as well as in the Symons case, where the Pietermaritzburg High Court held that the collapse of Sharemax was caused by the intervention of the SARB. This implosion was not a foreseeable risk, and as such the requirement of legal causation had not been established by the Ombud.
Despite these precedents, the Ombud’s office persisted in this view, leading to concerns whether hearings of syndication complaints were approached in a fair manner.
Bechard’s article also contains a link to an article that discusses a case where the tribunal called into question the Ombud’s failure to follow due process, citing four concerns.
In 2015, the then FSB Appeal Board noted the following, in the Siegrist and Bekker appeals, where the Ombud had elected to hold the directors of Sharemax accountable even though they were not cited in the complaint:
This judgment is not concerned with the correctness or otherwise of the findings of fact contained in the Ombud’s determinations such as that the appellants had deceived the public or that the investment scheme was a Ponzi scheme. It is limited to legal issues that go to the heart of the functions and jurisdiction of the Ombud. The personal circumstances of the two respondents, as unfortunate as they are, can accordingly not play a role in the outcome of this appeal.
Despite the establishment of a special unit in the Office of the FAIS Ombud to focus on syndication complaints, very little appears to be happening in terms of resolving the close on 1 000 cases outstanding a year or so ago.
Perhaps the time has come to accept the findings of the High Court and the tribunal and bring things to a head. Where the Ombud finds that an adviser had acted negligently, it should refer the matter to the FSCA for further regulatory action. Flogging a dead horse will not win the race, nor bring justice to complainants, some of whom are now represented by beneficiaries in their wills.
The current Ombud was appointed in an acting capacity from 1 November 2019 after her predecessor, who had been in the job for less than a year, made an unannounced departure. It is not clear why a full-time appointment has not been made since then.
I am sure that there are very good reasons why the Ombud’s office is battling to live up to its mandate of adjudicating complaints fairly, quickly, informally and economically. By not doing so, it raises serious questions about the supervisory controls that should be in place to measure service delivery and ensure accountability for failure to do so.
This office is funded by levies paid by the financial services industry. It is about time that bodies financed in this manner be held to the same high standards expected of the industry.
What does the future hold?
A discussion document “A Known and Trusted Ombud System for All” was published in 2017 as part of the Twin Peaks financial sector regulatory reform programme in South Africa. That document set out initial reforms to the ombud system included in the Financial Sector Regulation Act, as well as the need to undertake further research to inform future reforms.
This was followed by a World Bank diagnostic study which recommended that South Africa restructure its fragmented financial services ombudsman structure.
The diagnostic study, titled “South Africa – Financial Ombud System Diagnostic”, was commissioned by National Treasury and prepared by the World Bank Group.
It aims to provide an independent review of South Africa’s financial ombud system. It also seeks to recommend reforms to enhance customer protection and good-quality outcomes in the financial services sector.
The study covered the country’s seven financial ombud schemes. These are the Credit Ombud, Ombudsman for Short-term Insurance, Ombudsman for Banking Services, Ombudsman for Long-term Insurance, Pension Funds Adjudicator, Ombud for Financial Services Providers (FAIS Ombud), and the Johannesburg Stock Exchange Ombud.
Recommendations to address the findings include establishing a National Financial Ombud, a new non-statutory body to replace the current seven schemes except for retirement funds; the proposed reformed Pension Funds Adjudicator would become the Retirement Funds Ombud.
“The report acknowledges the many strengths and benefits of the current ombud schemes, but findings point to the need for a centralised and comprehensive ombud system that supports greater accessibility and efficiency across the financial sector,” read the media statement that accompanied the release of the findings.