Orientation Programme

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Financial Services Ombud Schemes Bill, 2004
PRESENTATION TO THE PORTFOLIO COMMITTEE ON
FINANCE BY Baron Furstenburg, Financial Sector
Policy Unit 18 August 2004
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OVERVIEW OF PRESENTATION

• HISTORY OF THE BILL
• CHARACTERISTICS OF AN OMBUD SCHEME
• OBJECTIVES OF THE BILL
• OPERATIONAL ISSUES
• OVERVIEW OF IMPORTANT SECTIONS OF THE BILL

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HISTORY OF THE BILL

• Cabinet approved of FSOS Bill originally in
  2001
• Bill postponed to 2002 due to heavy
  Parliamentary programme
• After further consultation a revised Bill was
  submitted to Parliament in 2003
• June 2003, Minister of Finance withdrew Bill,
  in order to address the following issues
• ? independence of the Ombuds
• ? demarcation of jurisdiction between statutory
  and voluntary ombuds
• ? ensuring adequate Ministerial oversight

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CHARACTERISTICS OF AN OMBUD SCHEME

• WHAT IS AN OMBUD SCHEME?
• ? dispute/complaint resolution mechanism
• ? an arrangement whereby subscribing members
  
  voluntarily agree to be
  bound by the decisions of an ombud.
• ? disputes are in first instance usually
  resolved by mediation. Only if this fails does
  the ombud make a determination (on the basis of
  equity).
• In terms of the Bill, the consumer can lodge a
  complaint in cases where the financial
  institution
• ? contravenes or fails to comply with the client
  agreement
• ? negligently supplies a financial service or
  product
• ? treats the client unreasonably or inequitably
• ? maladministers the agreement with client

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CHARACTERISTICS OF AN OMBUD SCHEME

• WHY HAVE AN OMBUD SCHEME?
• ? more cost effective than seeking redress in
  a court of law.
• ? free to the consumer.
• ? decisions are binding on the subscribing
  member but not the consumer.
• ? easy access.
• ? consumers right of redress to a court of law
  unaffected.

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CHARACTERISTICS OF AN OMBUD SCHEME

• Existing South African examples of financial
  service ombud schemes
• ? Banking ombudsman, long-term insurance
  ombud, short-term insurance ombud.
• ? Pension fund adjudicator, FAIS Ombud are
  created by statute and therefore fall OUTSIDE
  the ambit of this Bill. (They are not
  voluntary, industry established bodies).
• No standard, internationally recognised ombud
  scheme model. The UK, Ireland, Australia and
  Canada all have some form of ombud scheme
  arrangements.

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PRIMARY OBJECTIVES OF THE BILL

• Provide recognition of financial services ombud
  schemes
• Set-out minimum requirements for ombud schemes
• Develop and promote best practices for complaint
  resolution
• Promote consumer education with regard to ombud
  schemes

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OPERATIONAL ISSUES

• HOW WILL IT WORK?
• The Bill establishes an independent Council which
  will function as a committee of the Financial
  Services Board (FSB).
• The Councils budget will therefore be controlled
  by the FSB.
• The Council considers applications for
  recognition of an ombud scheme, and must grant
  recognition if the requirements specified in the
  Bill are fulfilled.

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IMPORTANT SECTIONS OF THE BILL

• SECTIONS 2,3 4 ESTABLISHMENT AND COMPOSITION
  OF THE FSOS COUNCIL
• Council consists of a minimum of five members
  (see section 5), including a Chairperson and
  Deputy Chairperson, who are appointed by the
  Minister of Finance.
• The majority of members must not be engaged in
  the business of a financial institution and/or
  the supply of a financial service to a client.
  The Registrar is an ex officio member of the
  Council. These provisions fortify the notion that
  the Council should be independent.
• Each member holds office for three years or such
  shorter period as the Minister may determine.
  Members are allowed to be re-appointed.

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IMPORTANT SECTIONS OF THE BILL

• SECTION 5 VACATING OF OFFICE
• Usual exclusions from office apply (eg. If member
  is an unrehabilitated insolvent).
• Section 5(f)(1) and 5(2) try to ensure the
  continued independence of the Council
• ? if a member when appointed was not engaged in
  the business of a financial institution, or
  supply of a financial service or product, but
  subsequently becomes so engaged, he/she must
  inform the Minister, and it is possible he/she
  may be removed from office.
• SECTION 7 REMUNERATION
• Members of the Council are paid remuneration and
  allowances determined by the FSB, including all
  reasonable expenses incurred in the execution of
  their duties.

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IMPORTANT SECTIONS OF THE BILL

• SECTION 8 FUNCTIONS OF THE COUNCIL
• The Council must
• ? Consider, grant or refuse an application for
  recognition of a scheme.
• ? Monitor compliance of recognised schemes with
  the Bill.
• ? Promote the education of clients with respect
  to the various dispute resolution forums.
• ? Develop and promote best practices for dispute
  resolution by recognised schemes.
• ? Ensure that in the execution of its duties,
  the independence and impartiality of the ombud is
  not affected.
• ? Annually submit a report on its affairs to the
  FSB and the Minister of Finance.

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IMPORTANT SECTIONS OF THE BILL

• SECTION 10 REQUIREMENTS FOR RECOGNITION
• In order to be recognised, a scheme must
  comply with the following requirements
• A majority of financial institutions in a
  specific category of financial institutions must
  participate in the scheme.
• A body not controlled by scheme participants must
  appoint the ombud.
• The scheme must provide certain minimum
  qualification requirements with which the ombud
  should comply.
• The scheme must have sufficient resources, funded
  by scheme participants, to allow the ombud to
  operate efficiently.

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IMPORTANT SECTIONS OF THE BILL

• SECTION 10 REQUIREMENTS FOR RECOGNITION
  (CONTINUED)
• ? The procedures of the scheme must enable the
  ombud to
• (a) resolve complaints by mediation,
  conciliation, recommendation or determination.
• (b) act independently
• (c) follow informal, fair and cost effective
  procedures
• (d) where appropriate, to apply principles of
  equity in resolving a complaint.
• Determination of the decisions of the ombud must
  be enforceable.
• ? A scheme must provide ways in which the public
  can be made aware of its existence and how it
  functions.

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IMPORTANT SECTIONS OF THE BILL

• SECTION 11 APPLICATION FOR RECOGNITION
• A scheme will submit its application in the
  prescribed manner to the Council.
• Representatives of the scheme may appear before
  the Council in order to support its application
  present its case.
• The Council is obliged to grant recognition to
  the scheme if satisfied that the scheme complies
  with all the requirements for recognition.
• If the Council is NOT satisfied, it MUST furnish
  the scheme with reasons for refusal.
• Once recognised a scheme may not change its
  constitution, provisions under which it operates,
  and the terms of reference of its ombud, unless
  the Council grants approval.

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IMPORTANT SECTIONS OF THE BILL

• SECTION 12 SUSPENSION OR WITHDRAWAL OF
  RECOGNITION
• The Council may at any time suspend or withdraw
  recognition
• ? on application by the scheme
• ? if the scheme has ceased to function
• if the scheme no longer complies with the
  provisions of
• the Bill.
• The Registrar must publish a notice of suspension
  or withdrawal in the Gazette.
• The scheme may appeal the decision of the
  Council. In such a case, the appeal will be heard
  by the Board of Appeal, established by Section 26
  of the Financial Services Board Act.

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IMPORTANT SECTIONS OF THE BILL

• SECTION 13 JURISDICTION
• The operation of any scheme under this Bill does
  not affect the authority and/or activities of the
  Pension Funds Adjudicator or the FAIS ombud.
• No ombud of a scheme has authority to resolve a
  complaint, or make a determination, regarding a
  matter in which the Adjudicator or FAIS Ombud in
  terms of legislation, has jurisdiction unless
  they have declined to settle the matter.
• In the event of uncertainty over who has
  jurisdiction, the Adjudicator, FAIS ombud and
  scheme ombud must agree who has jurisdiction over
  the complaint.
• If agreement cannot be reached then the FAIS
  ombud must determine who will exercise
  jurisdiction.

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IMPORTANT SECTIONS OF THE BILL

• SECTION 14 AUTHORITY OF STATUTORY (FAIS) OMBUD
• From the consumers point of view, there may be
  gaps in such a dispute resolution system.
• Therefore, the statutory ombud must also deal
  with a complaint if
• ? The financial institution does not participate
  in a recognised scheme.
• ? Recognition of a scheme has been withdrawn or
  suspended.
• The statutory ombud must deal with complaints in
  the manner stipulated in Part 1 of Chapter 6 of
  the Financial Advisory and Intermediary Services
  Act.

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IMPORTANT SECTIONS OF THE BILL

• SECTION 16 REPORT OF THE OMBUD
• The ombud of a recognised scheme must
• ? annually submit a report to the Council on
  the affairs of the ombud office over the
  financial year.
• ? provide the Council with a report or
  information which may be necessary to ensure
  compliance by the scheme.
• The Council must at the request of the FSB or
  Minister, submit the reports and information
  described above, to the FSB or Minister, as the
  case may be.

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IMPORTANT SECTIONS OF THE BILL

• SECTION 18 PROHIBITION AND EXEMPTIONS
• Any scheme operating prior to the promulgation of
  the Bill has 18 months from the date of
  promulgation, to obtain recognition. The scheme
  will be permitted in the interim period, to
  function as before.
• The Minister may, after consultation with the FSB
  and the Council, exempt any financial
  institution, or category of financial
  institutions, from one or more provisions of the
  Bill.
• The Minister may attach conditions to any such
  exemption.

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• QUESTIONS?