The National Financial Ombud Scheme South Africa (NFO) – an amalgamation of the banking, long-term insurance, short-term insurance, and credit ombuds – intends to start operating in January 2024. This is according to the Ombud Council, which this month released the NFO’s draft Rules and draft Memorandum of Incorporation (MOI) for comment.
The Ombud Council said the formation of the NFO “marks a significant shift in the ombud landscape. The new scheme is expected to leverage the existing schemes’ past successes while providing a streamlined, co-ordinated, and less confusing alternate dispute resolution framework for many financial customers.”
The four ombud schemes will become divisions within the NFO – Banking, Credit, Life Insurance, and Non-life Insurance. All financial entities that belonged to the previous ombud schemes on 31 December 2023 will be deemed to be participants in the NFO.
The NFO’s main purpose, mission, and how it resolves dispute will not differ significantly from the way in which the four existing ombud schemes operated, the Ombud Council said in a Statement of Need.
Background to the amalgamation
Moonstone has previously reported on the reasons for and the progress with the amalgamation of the Credit Ombud, the Ombudsman for Banking Services (OBS), the Ombudsman for Long-term Insurance (OLTI), and the Ombudsman for Short-term Insurance (OSTI).
The decision can be traced to a study by the World Bank Group in 2021 which recommended that the country’s fragmented ombud system be consolidated into a new single ombud scheme, independent of both the industry and the government, to cover the entire financial sector.
In anticipation of the broader consolidation of the ombud system proposed by the World Bank, the Credit Ombud, OBS, OLTI, and OSTI have voluntarily embarked on an amalgamation exercise. They have been working for the past two to three years to merge and align their operations and processes into a single new industry ombud scheme. This has culminated in the registration of a new juristic entity, in the form of a non-profit company without members, titled the National Financial Ombud Scheme South Africa, the Ombud Council said in an Explanatory Notice.
NFO’s draft Rules
The draft NFO Rules define the types of complaints and complainants with which the NFO will deal and set out the scheme’s dispute resolution processes and powers.
“The Rules provide consistent definitions and end-to-end processes for all types of complaints dealt with by the NFO, thus harmonising the previously inconsistent approaches of the four ombud schemes,” the Statement of Need says.
The preamble to the Rules states that the Rules apply to complaints received by the NFO from its date of commencement (1 January 2024). Existing complaints with the predecessor schemes will be resolved under the rules of those schemes, except that the new appeal provisions of the NFO will apply to final rulings made under the previous rules.
All industry participants are required to disclose, in various communications, the availability and contact details of the NFO to their financial customers. But participants have six months from the commencement of the NFO to comply with this provision.
Differences from the ombud schemes’ rules
The NFO’s Rules differ in several respects from the rules of the existing schemes, the Statement of Need says.
The definitions of “complaint” and “complainant” are aligned with the overarching definitions included in the Conduct of Financial Institutions Bill.
A complaint may be submitted orally, and a complainant will include members of insurance group schemes and potential financial customers.
The Rules define a “potential financial customer” as a person who has:
(a) applied to, or otherwise approached, a participant or a related party or representative of the participant to become a financial customer;
(b) been solicited by a participant to become a financial customer; or
(c) received advertising in relation to any financial product or financial service offered by the participant.
The Ombud Council said although there are no material differences in the types of dispute resolution processes the NFO will use compared to the existing schemes, the specific steps in the complaint-handling process – and the terminology used to describe them – may differ from those to which some participants are accustomed. Participants will therefore need to ensure their complaint-handling staff familiarise themselves with these changes.
The processes and grounds for appeals against NFO rulings may also differ for some participants.
Specific changes in respect of each ombud scheme
The Ombud Council’s Statement of Need advises participants to note the specific differences between the existing rules of the ombud schemes and the NFO’s Rules.
In respect of the Credit Ombud, these differences include:
- The definition of “participant” explicitly includes debt collection but excludes credit bureaux. But complaints about the provision of credit information by other participants to credit bureaux will be covered.
- The funding model provides for a participant (or membership) fee in addition to a case fee, which will be invoiced in January every year.
- The introduction of an internal appeal mechanism, which provides that both parties to a dispute have the right to appeal against a ruling.
- The introduction of monetary limits, including a maximum of R50 000 for compensation for material inconvenience or distress or for financial loss suffered by a complainant because of error, omission, or maladministration (including manifestly unacceptable or incompetent service).
The differences in respect of the OSTI’s rules include:
- The NFO may award compensation for material inconvenience or distress or for financial loss suffered by a complainant because of an error, omission, or maladministration (including manifestly unacceptable or incompetent service) by a participant. The limit of such compensation is R50 000.
- The funding model provides for a participant (or membership) fee in addition to a case fee, which will be invoiced in January every year.
- A complainant or participant may apply for leave to appeal against a ruling to a designated Appeal Tribunal and not to the Ombud who made the ruling.
- Complaints about the NFO’s service can be escalated to an independent assessor, if the party complaining about the service remains dissatisfied after receiving a response.
The differences in respect of the OLTI’s rules include:
- A complainant or participant may apply for leave to appeal against a ruling to a designated Appeal Tribunal and not to the Ombud.
- The NFO Rules provide that a (final) ruling may follow on a recommendation, although a provisional ruling may be issued in some cases.
In respect of the OBS, the rule changes include:
- The monetary limit for the value of complaints the scheme may consider has been increased to R5 million, to account for inflation and allow for a broader and more inclusive scope of cases. It also aligns banking complaints with the other types of complaints dealt with by the NFO.
- The new funding model provides for a participant (or membership) fee in addition to a case fee, which will be invoiced in January every year. The membership fee has the effect of slightly reducing the case fee for banks with more than 50 cases.
What happens next?
In terms the Financial Sector Regulation Act (FSRA), financial institutions may not refer their customers to an ombud or ombud scheme unless the scheme is a recognised industry ombud scheme or a statutory ombud scheme. An ombud scheme may also not hold itself out as a recognised industry scheme unless it is so recognised.
The NFO scheme will therefore not be able to continue the work of the existing schemes unless and until it is recognised as an industry ombud scheme by the Ombud Council.
The NFO scheme submitted its application for recognition to the Ombud Council on 13 November 2023, and the Ombud Council is considering the application in accordance with section 196 of the FSRA. As required by section 194(2) of the Act, the scheme has submitted a copy of its proposed governing rules to the Ombud Council, together with its recognition application.
The Ombud Council will revoke the recognition of the existing schemes once the NFO has been granted recognition.
Deadline to comment
Submissions on the draft Rules and draft MOI must be submitted to the Ombud Council on this template by 14 December 2023 to admin@ombudcouncil.org.za.
The formation of one body should contribute significantly to the effectiveness of informal complaints resolution. In the past, the office of the FAIS Ombud had to decline or refer as much as two thirds of complaints received. Now, one body can at the outset direct complaints to the right forum. Hopefully, the greater effectiveness stemming from these changes could lead to more cost-effective complaints.
Consolidation of the Ombudsman’s Schemes is a much needed step.
I stand to be corrected, but it appears that there is a major difference between the two types of Ombudsman schemes in South Africa. The statutory ombuds has been established by law whilst the OLTI in particular has been established by the roleplayers in the insurance industry themselves.
This create(d) an impression of independence but is it really? I believe that the NFO will be a more effective mechanism especially when it comes to
appeals. By the way: The R 50 000 compensation limit for poor service and questionable practices is merely a speeding ticket for any insurer!