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Plans to Consolidate Ombud Schemes

The Financial Services Regulation (FSR) Bill includes a review of the various ombud schemes currently active in the industry. The information below was extracted from the discussion document titled “An Integrated Ombud System”.

As the landscape for financial sector regulation is consolidated under the Twin Peaks framework, consideration must be given to how best develop a streamlined, efficient and coordinated system for ombuds.

The Ombudsman for Long-term Insurance was the first to be established in 1984, followed by the Ombudsman for Banking Services in 1997, the Pension Fund Adjudicator and Ombudsman for Short-term Insurance in 1998, the FAIS Ombud in 2002, the Credit Ombudsman in 2004 and the JSE Ombudsman in 2007. The Pension Fund Adjudicator and FAIS Ombud are created through legislation i.e. are statutory schemes, whereas the rest are voluntary schemes created by their respective industries.

From a customer perspective, trying to access the current fragmented ombuds system for an increasingly interconnected financial sector can be very confusing. For example: a customer who was mis-sold an insurance product through a bank distribution channel can complain to the FAIS ombud, banking ombud or an insurance ombud. A central call centre has been established to try and address this issue, directing complaints from a central point to the relevant ombud office, but more can – and should – be done. In reality, the unwillingness of some ombuds to partake in this facility caused an unnecessary workload in their offices, which was detrimental to productivity and added to the cost of running their offices – editor.

A consolidated approach to ombuds schemes under Twin Peaks

To strengthen the ombud system, current FSOS Act provisions are brought into the overarching FSR Bill, and additional provisions create a much stronger, independent Financial Services Ombud Schemes (FSOS) Council, intended to take over many of the functions currently assigned to the FSB. It also appears that the FSB will be replaced as the agency responsible for administratively supporting the FSOS Council and the statutory ombuds.

Once the FSOS Council is established through the FSR Bill, and as the consolidated market conduct policy framework is developed and entrenched, the stronger FSOS Council will start addressing weaknesses in current ombud arrangements. In particular, these are:

The need for greater coordination and consistency between ombuds

The current ombuds system has not had strong oversight and coordination, and has resulted in differing approaches to alternative dispute resolution mechanisms in different sub-sectors (e.g. banking, insurance, pensions etc.). In line with the approach to streamline financial sector regulation, and in particular to put in place a more consolidated overarching market conduct policy framework, one of the main functions of the FSOS Council will be to ensure that the ombuds’ system is similarly reformed. A key focus of the council will therefore be to ensure better coordination and strengthened oversight of ombud activities, and a more unified approach to external dispute resolution across the financial services sector.

Accessibility and the state of consumer awareness

The FinMark Trust study found a lack of knowledge or awareness among consumers about the existence of the ombudsmen and a lack of knowledge about which channel to use for specific complaints. This finding is further supported by more recent statistics – in 2013 it was found that only 43% of the complaints received by the FAIS ombud fell within the jurisdiction of that ombud.

The FinMark study concluded that there was work to be done by both the ombud schemes and the FSOS Council to improve consumer awareness and their ability to use ombud facilities.

The voluntary ombuds and industry participants have on an individual basis implemented measures to improve knowledge and awareness among consumers. The various industry codes of conduct require institutions to advise customers to escalate their complaints to the relevant ombud if they are not satisfied with the results of their institutions’ internal complaint process.

The FSOS Council, working with the FSCA and financial institutions, will need to drive greater awareness among financial customers of the ombud schemes, their jurisdiction, and their purpose.

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