The Financial Sector Regulation (FSR) Act was signed by the President in August 2017. The National Treasury announced that it will be publishing a series of consultation documents, setting out in more detail the work being undertaken for each component of the Act.
The first of these is a consultation policy document published in September titled “A Known and Trusted Ombud System for All” which provides guidance on how dispute resolution mechanisms may look in future.
The Twin Peaks reform presents an opportunity to consider the current legal and structural arrangements for financial sector ombuds, and develop a policy framework that responds to identified challenges and better aligns the ombud system to the emerging Twin Peaks architecture, in order to achieve the following:
- Ensure that all financial products and services are covered by the ombud system.
- Reduce fragmentation of the ombud system, making it easier to promote awareness and recognition of the role and functioning of the ombud schemes to financial customers.
- Develop best practice standards of conduct across all ombuds (whether voluntary or statutory), that takes into account matters of governance, complaints handling, jurisdiction and reporting.
The Financial Sector Regulation (FSR) Act, which will establish the Twin Peaks architecture, includes provisions related to the ombud system. The FSR Act builds on the Financial Services Ombud Schemes (FSOS) Act (which will be repealed) and the FSB Act (also to be repealed) to strengthen the role and powers of the existing FSOS Council. It replaces the FSOS Council with a full-time Ombud Council, which will be required to promote the awareness, accessibility and use of the ombud system, and take steps to improve its effectiveness, including by imposing common standards of best practice and promoting cooperation and coordination amongst ombuds. The Ombud Council would thus oversee all ombud schemes, becoming a “regulator” of ombuds. In instances where the jurisdiction of a complaint is unclear, the Ombud Council is empowered to determine which ombud is responsible for hearing the complaint.
In particular, the FSR Act:
- Provides for coverage of all financial product and financial service providers by appropriate ombud schemes, including by requiring financial institutions to be a member of an industry ombud scheme operating for its sector, and giving powers to the Ombud Council to allocate a case to the best-suited ombud where no voluntary ombud is available.
- Enhances the role of the existing FSOS Council, by establishing a stronger Ombud Council as a statutory body, with a clear mandate and capability to harmonise and improve the ombud system, and with strong oversight powers over both statutory and voluntary (now named as “industry”) ombuds.
- Appoints a Chief Ombud as head of the office of the Ombud Council, in effect to give the body its “hands”, i.e. the power to exercise its functions.
- Provides for the Ombud Council to recognise industry schemes, set enhanced governance and accountability requirements, and harmonise and strengthen standards of practice for each ombud scheme through rule-making and enforcement powers, to develop a uniform and consistent framework for external dispute resolution mechanisms across the financial sector.
- Requires all ombuds to consider the principle of equity and fairness in investigations and decision making (in addition to the laws of contract and financial services).
- Provides for complainants to appeal a decision made by the statutory ombud to the Financial Services Tribunal established in the Act (consideration should be given to extending this right to apply to decisions taken by industry ombuds as well).
- Requires the Ombud Council to establish a single point of entry into the ombud system. Clarifies the relationships between the Ombud Council, ombuds, financial institutions and the Financial Sector Conduct Authority, in respect of governance, reporting, respective responsibilities, and cooperation and coordination, to better support the outcomes-based approach to conduct regulation cemented through the FSR Act.
- Facilitates further reform to the ombud system.
It is important to note that while the FSR Act provides for the appointment of a Chief Ombud, this position will not carry any ombud powers. In other words, the Chief Ombud will not, under the FSR Act, be empowered to rule on any customer complaints. The Chief Ombud is in effect the Managing Director of the Ombud Council, responsible for carrying out the specified functions of the body. The naming of the Chief Ombud does however provide for options in terms of potential further reform of the ombuds system as explained in Chapter 6.
In addition to responding to structural considerations due to the regulatory reform process underway, the changes proposed in the FSR Act also aim to improve the performance of the ombuds system, in line with international learning and best-practise principles.
In view of harsh criticism from the FSB Appeal Board in the past, the establishment of the Ombud Council, and far easier access to appeal mechanisms than in the last, will certainly add practical impetus to the requirement that the Ombud should resolve complaints impartially, expeditiously and economically.
The National Treasury will host a workshop in Pretoria on 29 November for interested stakeholders to discuss the reforms proposed to the financial sector ombud scheme system.