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New ombud system proposed

The ceremony at which Jack Nicholson received his Oscar for “As good as it gets” was the same one where “Titanic” dominated all the categories. Nicolson, with that wicked smile of his, opened his acceptance speech by saying: “All night long I had that sinking feeling.”

When I downloaded the introductory document on the proposed new ombud system, and saw that it had the same red cover as “A safer financial sector to serve South Africa better”, published in 2011, my heart also skipped a beat, knowing what change that publication had wrought.

Below is a summary of the media release on the discussion document.

The policy document “A Known and Trusted Ombud System for All” forms part of the comprehensive financial sector regulatory reform programme underway as South Africa shifts toward a Twin Peaks model of regulation.

The Treating Customers Fairly outcomes underpin South Africa’s market conduct framework under Twin Peaks. The reforms aim to significantly improve consumer protection in the financial sector by promoting customer-centric financial institutions on the one hand and empowered consumers on the other. Empowered consumers are able to make informed financial decisions and can hold their financial institutions to account for poor service or broken commitments. Accountability measures available to consumers should include the ability to have complaints against a financial institution resolved fairly and effectively by the institution, and in instances where such resolution isn’t possible, the availability of an alternative impartial third party to resolve the dispute.

This consultation policy document addresses measures to improve the alternative dispute resolution environment in South Africa, which is provided through the ombuds system. Effective financial sector ombud schemes are needed to drive the financial sector to serve South Africans better.

There are currently six different financial sector ombud schemes in South Africa, each providing a dispute resolution platform that is free to consumers and external to financial institutions. There are many differences in how these ombud schemes are established and how they operate, including the fact some are established through statute while others are established through industry initiative. While the system has provided vital assistance in resolving the disputes of many customers, it has been identified that there are weaknesses, inconsistences and inefficiencies in its operation that may be hampering the achievement of good customer outcomes.

As explained in the document, the Financial Sector Regulation Act (Act 9 of 2017) takes the first step toward addressing shortcomings in the ombud system. The Act establishes an Ombud Council as a full-time statutory body, tasked with ensuring that customers are able to access effective, independent, fair and affordable dispute resolution processes. The Ombud Council will set rules for the ombud schemes to follow, to drive consistent approaches and adherence to minimum best standards.

The Act also requires that all financial institutions belong to an ombud scheme if a suitable one exists. It is anticipated that the Ombud Council will be established alongside the Prudential Authority and Financial Sector Conduct Authority in 2018, and provisions relating to the ombuds system implemented thereafter.

Options for future further reform to the ombud system are proposed in this document for further discussion. Such options include:

  • Enhancing the hybrid model of statutory and industry ombuds, building on FSR Act provisions
  • Moving toward a centralised model, establishing a single statutory ombud scheme
  • Moving toward exclusively industry established ombuds with strong oversight by the Ombud Council.

Each option carries different advantages and disadvantages, and future reforms will have to be carefully considered.

This document lays the basis for future research into and engagement on ombud system reforms by the National Treasury and the Ombud Council, once it is established.

At the launch of the 2016 annual report of the Short-term Ombud Kershia Singh, Acting Director, Market Conduct at National Treasury addressed the audience on the same theme.

The main change to the current operation of the ombuds system is the creation of an Ombuds Council to replace the current Financial Services Ombud Scheme Council.

The Ombud Council will be a full-time operational body, in contrast to the current part-time Board structure of the FSOS Council. It will be able to appoint staff, and will have an executive head, known as the Chief Ombud. The Ombud Council will continue to recognize ombud schemes. It will also be able to set rules for all ombud schemes to follow, and importantly, will now be able to take enforcement action should these rules not be followed. The rules will be aimed at ensuring a more harmonized and consistent approach to complaints resolution across the sector, in line with the objective of ensuring that customers have access to affordable, effective, independent and fair alternative dispute resolution processes.

Other key functions of the Ombud Council will be to:

  • promote public awareness of ombuds and ombud schemes and the services they provide;
  • take steps to facilitate access by financial customers to appropriate ombuds; and
  • publicise ombud schemes, including publicising the kinds of complaints that different ombud schemes deal with.

Comments on the discussion document are invited until 30 November 2017 and can be sent to:

The National Treasury will also host stakeholder workshops on the document, and further information on this will be communicated in due course.

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