For the information of member offices we circulate our submission on the FSOS Bill, 2004 as submitted to PCOF, earlier today.

This submission was drafted by Mr Johann Davey and the writer on behalf of the Marketing Regulations Standing Committee.

(Circulated in the absence of Ms Anna Rosenberg)

The Financial Services Ombud Schemes Bill (hereinafter referred to as "FSOS" or "the Bill") has been through many versions and has been the subject of much debate.

The LOA fully supports the recognition of Voluntary Ombud Schemes and the establishment of a Statutory Ombud, which will ensure that all customers of financial services will have the opportunity, in addition to their right to seek redress in a Court, to submit their complaints against a financial institution to an Ombud for adjudication thereof.

The Long-Term Insurance Ombudsman, established in 1984, and the other financial services voluntary Ombudschemes (Banking and Short-term ombudsman) have proven to be a very effective and workable mechanism, which are serving the consumer very well. As appears from the "statistical overview" contained in the Long-term Ombudsman’s Annual Report for 2003, consumers have come to trust the independence and impartiality of the scheme. The council governing the schemes has consumer representation, thus maintaining the independence of the scheme. The mediation of disputes is prompt ensuring that the consumer does not have to agonise through lengthy and costly court processes.

An important feature of the voluntary ombudschemes is that they are premised on voluntary agreements between the Ombudsman and the financial institutions, wherein the companies give undertakings to be bound by the decisions of the ombudsmen. These agreements result in a far less adversarial process, which in turn eliminates undue delays. Moreover the ombudsmen’s ruling is not only based purely on law, but also on equity, thus ensuring that consumers are not denied recourse as a result of a legal technicality that may not be material.

The fact that the Bill aims to ensure exclusive jurisdiction for the FAIS Ombud and the Pension Fund Adjudicator and to prohibit a Voluntary Scheme Ombud, although having jurisdiction in terms of the Rules of the Scheme, from dealing with any complaint over which either of them has jurisdiction, has been (and we believe still is) a contentious issue and various submissions have been submitted to the FSB and/or the Department of Treasury in this regard.

We have recently been advised that the Ministry wishes to ensure a clear demarcation of jurisdiction. However, insofar as we appreciate that the Ministry wishes to ensure and promote the best interest of clients/customers, we believe that we will be remiss not to point out that, regard being had to the nature of complaints and the provisions of the relevant Acts, a clear demarcation of jurisdiction will be extremely difficult, if not impossible, to achieve and that the proposed demarcation may very well prove to be counter productive.

We submit that, regard being had to the pre-conditions for recognition, the requirements prescribed for the appointment of a Voluntary Ombud, the prescriptions/guidelines pertaining to the adjudications of complaints by a Voluntary Ombud and the reporting and monitoring requirements and /or provisions in the proposed FSOS Bill, there is no reason to exclude the Ombud of a recognised Voluntary Scheme from adjudicating complaints against or pertaining to members of the Scheme. The aforesaid provisions are clearly aimed at ensuring that only competent and independent persons may be appointed as an Ombud and that they adjudicate complaints in an expeditious, lawful and equitable manner.

Regard being had to the relevant provisions in the FAIS Act, which compels a Financial Services Provider ("FSP") to inform a client within 6 weeks from receipt of a complaint of his/her rights to approach the FAIS Ombud (and provide the FAIS Ombud’s details), and section 10(h) of the proposed FSOS Bill, which compels a Voluntary Scheme " to provide for ways in which the public can be made aware of the existence the scheme and how it functions", concurrent jurisdiction should not create any confusion amongst clients/consumers wishing to lodge a complaint as regards a financial product or service.

We accordingly submit that it will in fact be in the interest of clients not to restrict the Voluntary Ombud’s jurisdiction, but to allow concurrent jurisdiction, and that section 13(2) should therefore be deleted.

"FAIS Ombud": We submit that this definition be inserted, as a separate definition is needed from that of the statutory ombud, and should be the same as in the FAIS Act.

Section 3 (1): It is recommended that this section be amended to provide for a minimum and maximum number of members of the Council, regard being had to the financial costs incidental to their appointment. We furthermore suggest that the number of members which will constitute a quorum for purposes of decisions pertaining to the Council’s duties in terms of this Act, and the composition of such quorum, be included in the section (regard being had to subsections 3(2)(a) and (b)).

Section 3(2) (b) (ii): As presently drafted this subsection does not read well. We suggest it is replaced with, "provision of financial services or financial products to clients".

Section 4(1): In order to prevent any perception that government may seek to influence the decisions of the Council through the term of member’s appointments, it is submitted that the sub-section be amended to make it clear that all members appointed to the Council will be appointed for the same period by the Minister. Regard being had to subsection 4(2), such an amendment need not result in a break in continuity.

Section 4 (2): There appears to be a spelling mistake here; it should read "reappointment" and not "reappointed".

Section 5(2): We suggest that the subsection be amended by the deletion of the words "….supply to a client of a financial service or product of a financial institution"….and the replacement thereof with "provision of financial services to a client".

Section 6(1): It is submitted that the term "as it thinks fit" be deleted and replaced with " in accordance with the rules and procedures to be established and recorded by the Council within six months after the appointment of the first members of the Council."

Section 8(1)(c): Regard being had to the provisions of section 32 of FAIS, which authorises the Registrar to promote client education and awareness of the nature and availability of the FAIS Ombud and the provisions of section 10(h) of the Bill, which compels a Voluntary Scheme to provide "…for ways in which the public can be made aware of the existence of the scheme and how it functions", it is submitted that the Council need not be tasked to provide consumer education and their obligations in this regard should only extend to the overseeing of the voluntary schemes obligations under s10(1)(h).

We point out that there is also an obligation on FSP’s to inform clients of their right to refer complaints to the FAIS ombud (s10 of the FAIS General Code) and that the Policyholder Protection Rules ("PPR") promulgated under the Long Term Insurance Act, 52 of 1998 similarly obliges long-term insurers to provide clients with details of the Long-Term Insurance Ombudsman and the FSB.

Section 8(1) (d): The subsection as presently drafted, effectively empowers the Council to prescribe to Ombud’s how to resolve complaints; it is to be noted that the phrase... "after consultation" does not mean that the relevant ombud has to concur.

To the extent that the subsection contemplates interference with the exercise by an ombud of his powers, it compromises the independence of the ombud and as such is contrary to section 8(1) (e).

Section 10(1)(e) of FSOS already prescribes, as a requirement for recognition, the principles which an ombud has to apply when adjudicating complaints. In the premises it is submitted that the subsection is not only unnecessary, but in so far as it basically provides the Council with plenary powers, may very well be held to constitute an unconstitutional delegation of legislative powers. It is therefore submitted that the sub-section be deleted, alternatively be amended to read; "in consultation with the relevant ombud, suggest and develop best practices for complaint resolution by the relevant recognised scheme".

Section 8(1) (f): Our comments on section 8(1)(d) above, as regards the delegation of legislative powers, are reiterated. It is also submitted that the obligations imposed in s8(1) a-e are all directed at achieving the objects of the Act and that this subsection be deleted.

Section 8(2)(c): The subsection, as presently formulated, is somewhat ambiguous in that it does not stipulate whom may conduct such an assessment and audit, nor when this will be deemed necessary. As presently phrased, the Council is empowered to require, if deemed necessary, an audit by forensic auditors, the considerable cost of which will be for the account of the voluntary scheme. This will be extremely burdensome on the voluntary schemes. It is to be noted that s16(1) of the Bill already obliges the ombud to submit a report to the Council on the affairs and functions of the office of the ombud and must, in addition, furnish the Council, at its request, with such information regarding the operation of the scheme as may be necessary to ensure compliance by the scheme.

It is therefore suggested that this subsection be amended to read, "Upon receipt of a report submitted in terms of section 16, or of a complaint from a client, which indicates that the voluntary scheme may have acted contrary to the requirements for recognition, request specific information and/or a report from the ombud regarding the scheme’s compliance with the relevant requirement."

(a) Law Society; or

(b) Bar Council; or

(c) Law faculty of a recognised university

as being competent for purposes of verifying compliance with the requirement in question;

Section 9(2): It is to be noted that the Board is in any event funded through levies paid by participants of the recognised schemes. It is submitted that such services as might be rendered by the Council be funded out of the levies paid to the FSB by the participants to the recognised schemes. In the premises it is submitted that this section be deleted.

Section 10(1) (i): We believe it important that the Act should clearly stipulate all the requirements for recognition. We furthermore submit that this sub-section constitutes a delegation of legislative powers which effectively grants the Minister plenary powers and may be held to be unconstitutional.

Section 11(1): Insofar as this subsection already provides for an application to be submitted in accordance with the format prescribed by regulation, it is submitted that the words "the supporting documentation and information determined by the board" should be deleted. Such documentation and information deemed necessary should be prescribed by regulation.

Section 11(4): See our comments in respect of subsection 10(1)(i) above.

Section 11(5): The FSOS Bill is designed to govern the recognition and registration of voluntary schemes and, upon non-compliance with duly prescribed requirements, the suspension and withdrawal thereof. Its purpose is not to empower the Council to monitor the ombud’s ongoing operations, as this will be contrary to section 8(1)(e).

The provisions under which a voluntary scheme operates may deal with many issues which do not pertain to those regulated by section 10. As presently drafted this section will severely impair the schemes ability to regulate its own administrative and internal issues such as the remuneration of the ombud and the number of members of its own Council. Insofar as the Council is empowered in terms of s12 to suspend or withdraw recognition of any scheme, which no longer complies with the provisions of the Act, it is submitted that sub-sections 11(5)(b) and (c) are unnecessary and should be deleted.

Section 13(1): Regard being had to the provisions of section 14(2), the operation of a recognised scheme does impact on the authority of the statutory ombud to adjudicate complaints. It is presumed that the intention is to enshrine the jurisdiction of the FAIS Ombud & in the premises, the words "statutory ombud" should be replaced with "FAIS ombud" in subsections 13(1) and 13(2).

Section 13(2): Please refer to our comments and submissions in the introductory part above.

Section 13(3): It is submitted that this subsection be amended to read: "If either an ombud, the Adjudicator, the statutory or FAIS ombud does not have jurisdiction in respect of any specific complaints submitted to them, they shall submit such complaint without undue delay, to the office which does have jurisdiction and advise the client accordingly."

The following sub-section can then be introduced as 13(4);

"In the case of uncertainty as regards whom the complaint should be referred to, the relevant ombud, Adjudicator, FAIS Ombud or statutory ombud concerned, as the case may be, must consult in order to determine who should adjudicate the complaint. Failing such agreement, the matter will be referred to the statutory ombud to determine who may exercise jurisdiction in respect of the complaint. The statutory ombud shall advise the client accordingly."

This will have application whether or not the FAIS ombud & the Adjudicator are afforded exclusive jurisdiction in respect of specific complaints.

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