FAIS Ombud Annual Performance Plan

NCOP Finance

21 June 2017
Chairperson: Mr C de Beer (ANC, Northern Cape)
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Meeting Summary

The Financial Advisor and Intermediary Services (FAIS) Ombudsman, responsible for the regulation of financial service providers, reported to the Committee on its annual performance plan. It had received 10 846 complaints in the 2016/17 financial year, of which 5 183 cases were dismissed, 4 769 were referred to other entities, 1 005 were settled, and 68 were determined. The number of ‘settled’ complaints reflected a 13% decrease from the previous financial year, while the number of ‘determined’ complaints reflected a 65% increase from the 2016/17 year. The FAIS ombud served as a platform for informal settlement as an expeditious and cost-effective alternative to formal litigation, therefore a determination should be seen as a last possible solution to resolving a complaint.

The ombud said there were various reasons for the increase in the number of complaints, including the intangible nature of financial products, and the furnishing of unsuitable and inappropriate financial advice. The leading type of complaints involved the short-term insurance sector, as entities that sold these policies rarely told consumers what they needed to know about the product itself, instead marketing the product on the basis that the premium was cheaper than a competitor’s product. Long-term insurance instruments were also a major source of complaints.

Members raised concerns regarding the number of deferred and rejected complaints, as well as the fact that the FAIS ombud's jurisdiction was limited to violations which occurred after 30 September 2004, and to claims not exceeding R800 000. These limitations were legislated in the FAIS Act of 2002.

The FAIS ombud had an approved budget of R44 795 000 for the 2016/17 year, of which R28 258 000 was for the compensation of employees, and R16 537 000 for goods and services. In terms of the Medium-Term Expenditure Framework (MTEF), expenditure was expected to increase by 7% to R48 120 000 in 2017/18. The ombud had received unqualified audit reports since its inception, and had achieved a clean audit from the Auditor-General for the past two years.

Members raised questions regarding the accessibility of the FAIS ombud’s services, and were informed that  complaint registration forms were available at police stations, public hospitals and post offices across the country. Furthermore, the ombud’s call centre catered for all eleven official languages, and that individuals with special needs could be assisted in both logistical and financial terms in filing a complaint.

Opposition Members raised an objection to an ANC Member of Parliament’s engagement at the Committee meeting, despite not being a member of the Select Committee. The Chairperson informed them that any Member of Parliament was allowed to attend any committee meeting. 

Meeting report

Presentations delayed

The Chairperson welcomed the delegates from the office of the Ombudsman for the Financial Advisor and Intermediary Services (FAIS). He said the chairperson of the Development Bank of Southern Africa (DBSA) could not attend, due to an unforeseen personal matter. For this reason, he continued, the DBSA would present its annual performance plans to the Committee at a later date. The Land and Agricultural Development Bank (Land Bank) of South Africa were also scheduled to present their annual performance plans during the session, but these plans had not yet been signed off by the Minister in accordance with the Public Finance Management Act (PFMA) requirements. For this reason, it would be necessary to exclude the Land Bank from the agenda for the session.

Briefing: Ombudsman for Financial Advisor and Intermediary Services (FAIS)

Ms Noluntu Bam, Ombud, Financial Advisor and Intermediary Services (FAIS), said that the ombud functioned as a complaints resolution entity within the financial services industry. The ombud could deal only with complaints that feall within its legal jurisdiction as per the Financial Advisory and Intermediary Services Act of 2002 (FAIS Act). As a statutory ombud, the FAIS ombud had a primary objective of providing a fair, transparent and relevant service to customers who had reason to believe that an institution was not operating within the FAIS Act. For this reason, she stressed the importance of educating the public on not only the service of the FAIS ombud, but on the nature of financial products that they consumed.

Ms Bam highlighted three strategic objectives in the annual performance plan. Firstly, the ombud sought to enhance customer satisfaction; secondly, to achieve operational excellence by enhancing service delivery; and thirdly, enhanced stakeholder engagement. In terms of enhancing customer satisfaction, the ombud reported an annual target of 80% customer satisfaction for all resolved cases, 80% customer satisfaction with communication and processes, 80% customer satisfaction with the ease of access to the FAIS ombud’s offices, 85% complaints closed within nine months, and 80% complaints responded to within seven days of receipt.

The ombud had received 10 846 complaints in the 2016/17 financial year, of which 5 630 were justiciable under the entity’s mandate. In terms of the complaints resolved during 2016/17, 5 183 cases were dismissed, 4 769 cases were referred to other entities, 1 005 were settled, and 68 were determined. The number of ‘settled’ complaints reflected a 13% decrease from the previous financial year, while the number of ‘determined’ complaints reflected a 65% increase from the 2016/17 year. The ombud served as a platform for informal settlement as an expeditious and cost-effective alternative to formal litigation, therefore a determination should be seen as a last possible solution to resolving a complaint.

Ms Bam identified three reasons where the ombud would dismiss a complaint: firstly, if it was established that the complaint lacked merit; secondly, the complaint had been prescribed; and thirdly, that the complaint fell outside of the FAIS ombud’s jurisdiction. With regards to the latter, she said that the ombud did not have jurisdiction to investigate any complaint before 30 September 2004, as per the regulations of the FAIS Act.

Mr Jean Goodey, Finance Manager, said that the operational strategic objective encompassed support functions, human resource matters, and information technology (IT). There were five targets under the operational strategic objective: achieving an unqualified audit opinion, an approved budget, the review and approval of organisational policies and procedures, concluding the minimum number of trainee contracts, and adherence to the performance management system.

The FAIS ombud had an approved budget of R44 795 000 for the 2016/17 year, of which R28 258 000
(63%) accounted for compensation of employees, and R16 537 000 (37%) accounted for goods and services. In terms of the Medium-Term Expenditure Framework (MTEF), the FAIS ombud reported expected expenditure of R48 120 000 in 2017/18, reflecting a 7% increase from the approved budget for 2016/17. The Committee was assured that expenditure increases for the MTEF period would stay below the consumer-price index (CPI) rate. The FAIS ombud had received unqualified audit reports since the entity’s inception, and had achieved clean audits from the Auditor-General of South Africa (AGSA) for the past two years.

Ms Sithabile Sabela, Assistant Ombud, stressed the importance of stakeholder engagement, to deepen the level of trust between the FAIS ombud and its stakeholders within the confines of the resources allocated to the entity. For the 2017/18 financial year, she reported an annual target of 2 500 hits on the entity’s website, 26 engagements with key stakeholders, and 10 media-related activities.

The FAIS ombud delegation then presented a brief case-study video to the Committee.

Discussion

The Chairperson commented that the scenario featured in the video pertained to an individual in the upper-middle class of South African society. With this considered, how many complaints did the ombud receive from individuals with a lower income? How do these individuals make contact with the ombud?

Mr L Gaehler (UDM, Eastern Cape) said that in the case study scenario, the FAIS ombud was able to make the institution pay only R800 000 to the complainant. Why was the compensation restricted to this figure and not the whole amount recoverable?

Mr O Terblanche (DA, Western Cape) requested clarity on the ombud’s relationship to the Consumer Protection Act of 2008. He also wanted to know the percentage of successful consumer complaints.

Mr F Essack (DA, Mpumalanga) asked why there had been an increase in complaints over the last 48 months. What aspect of the market was fuelling these complaints? Which sectors in particular had been highlighted in the rising volume of complaints? What were the cost implications for a complainant in approaching the ombud? With reference to the case study, he had noted that there were substantial grey areas in the credit life policies in the South African long-term insurance industry.

Mr T Motlashuping (ANC, North West Province) asked why the ombud could deal with cases only after 30 September 2004? Why was there a timeframe attached to the ombud’s jurisdiction? He requested clarity on the ombud’s limited scope in dealing with complaints of up to R800 000. To what extent was the FAIS ombud helping black people in particular? Did they have access to the entity and its services? He pointed out that in the ombud’s reported annual targets for consumer satisfaction, the projected targets were “nowhere near 100 percent”, and therefore it appeared as though the ombud was leaving room for failure in terms of its strategic planning. In the graph depicting “complaints resolved” year-on-year, he argued that the entity had been under-achieving in its performance.

Dr H Mateme (ANC, Limpopo) asked whether the ombud was providing a service for financial providers or consumers, and requested that the delegation expand on the concept of “financial intermediary”. She argued that within townships and rural areas across South Africa, the role and scope of the entity was largely unknown. How was the ombud addressing the needs of these communities – the same communities that voted the government into power – within the scope of its practice? How did the office of the ombud practice equity, to enable those who had received little or no services in the past to get more now?

The Chairperson said that the report on the public hearings on transformation of the financial sector would help to answer some of Dr Mateme’s questions. He asked why the FAIS ombud’s presentation did not feature an organogram. When the ombud dealt with cases, what entities assisted in this process? He commented that many financial service providers used extravagant and misleading advertising, but the specific information – the “fine print” – was not available to the consumer.

Ms Bam addressed the question regarding the accessibility of the ombud’s services, and said that its complaint registration forms were available in police stations, public hospitals and post offices across the country. Furthermore, its call centre catered for all eleven official languages, and individuals with special needs could be assisted in both logistical and financial terms in filing a complaint. A major issue in the financial services industry was the intangible nature of financial products, as well as the lack of adequate understanding by consumers on the financial products they consumed. For this reason it was vital that consumers received the correct advice on these financial products.

The Chairperson asked why the institution featured in the case study had not corrected its mistake in the first place.

Ms Bam responded that the ombud did not enter into the formal side of complaints resolution until informal settlement options had been exhausted. Following a complaint to the FAIS ombud, the complaint was then sent to the institution concerned, who would subsequently respond to the complaint or concede. If the institution chose not to concede, they were required to provide proof in their defence. In many cases, they would not receive defences, as it was difficult for institutions to prove that the correct advice had been furnished. With regard to the maximum ruling of R800 000, she said that this regulation had been in place since the FAIS Act was legislated in 2002.

The Chairperson asked why the R800 000 figure had been adopted. Why was the amount not R900 000, for instance?

Mr Essack commented that on 30 August 2017, the Committee was scheduled to meet with the National Treasury regarding the Insurance Bill, and suggested that this session would be a good opportunity to ask the National Treasury about the R800 000 figure.

Ms Bam said that the ombud could not act outside the provisions of the FAIS Act with regard to the R800 000 limit. When individuals had a complaint in excess of R800 000, they had two options: firstly, they had to state in writing that they were prepared to relinquish the amount in excess of R800 000; or secondly, they could approach the institution and ask whether the institution would be happy with the FAIS ombud investigating the complaint. In the latter case, it was extremely rare for financial institutions to elect to concede more than the R800 000 limit, although it had happened in the past.

Regarding the accessibility of the FAIS ombud’s offices, there were no rigid formalities or costs for the public to lodge a complaint. In this regard, the ombud accepted complaints telephonically, in writing or physically (walk-ins).

Addressing the question on the FAIS ombud’s relationship with the National Consumer Commission, she said that the ombud often referred complaints to the Commission, and vice versa.

All complaints that were referred, dismissed, settled or determined were considered “resolved,” although a complaint that was “resolved” did not necessarily mean that a financial settlement had been reached.

Regarding assistance in resolving complaints, Ms Bam said that the entity had a staff complement of 74 working at the office of the FAIS ombud, most of whom were legally trained. A number of administrators were tasked with looking at all complaints received and giving these complaints specific reference numbers. From that point, legally trained case managers had to confirm decisions regarding the nature and status of complaints, which could be appealed by members of the public.

A variety of factors were responsible for the increase in the number of complaints, including the intangible nature of financial products, as well as the furnishing of unsuitable and inappropriate financial advice. The leading type of complaints pertained to the short-term insurance sector. Entities that sold these policies rarely told consumers what they needed to know about the product itself, and instead marketed the product on the basis that the premium was cheaper than a competitor’s product. The attraction of saving on these premiums was tempting for consumers, who unknowingly committed to a trade-off where the benefit was so thin that the benefit was almost “illusionary”. The long-term insurance sector – including life insurance and investment vehicles sold by insurance providers – was another major source of complaints. In many instances, these products were sold by ordinary salesmen, with minimal advice furnished.

Regarding the cost implications for complaints to the FAIS ombud, Ms Bam said that there were no costs involved in lodging complaints. However, if complainants wished to pursue a complaint worth more than R800 000, the ombud could not legally accept the complaint unless the complainant was willing to abandon the amount in excess of R800 000. 

Ms Sabela addressed the question about why the FAIS ombud could not deal with cases before 30 September 2004, and said that the FAIS Act could not be applied retrospectively. Furthermore, in terms of the timeframe for dealing with complaints, the ombud could not accept complaints older than three years, as these complaints then became prescribed. She stressed that the ombud must reject the complaint if the law prevented the ombud from doing so.

Regarding the number of black individuals accessing the services of the ombud, she said that the entity’s graduate trainee programme sought to attract promising individuals who had previously been excluded from the financial services sector. In doing so, the programme had established partnerships with law schools and law training institutions around the country in order to attract graduates to enter into the financial services industry. The training programme looked to address the issue of inclusivity, and enable previously disadvantaged individuals to access opportunities in the financial sector.

Ms Sabela said the review and approval of policies was a holistic exercise, and not merely administrative in nature. The FAIS ombud’s policies were aligned with the relevant legislation, as well as the government’s broader agenda to transform the economy. One such policy pertained to the inclusion of languages, specifically towards elevating the status of indigenous languages.

Regarding the question relating to cases received and cases resolved, she conceded that the statistics painted a picture of under-performance, but under the FAIS Act, a “resolution” referred to a dismissal, referral or settlement of a complaint. In all these instances,  the complaint required the application of a legal mind, even if the process may appear unattractive to the consumer or onlooker. There was intensive training in the case management department to educate complainants on what to expect in terms of case management. In this regard, transparency and access to information was paramount.

Ms Bam addressed the question relating to whether the ombud was assisting financial service providers or consumers. She said that the entity took no sides in complaint resolution, but remained impartial and objective. Although the ombud’s mandate involved protecting consumers, the ombud did not act in the capacity of an advocate to consumers. The two primary objectives of the ombud were to protect consumers and promote the integrity of the financial services industry. In some instances, complainants believed that the FAIS ombud was their lawyer.

Addressing Dr Mateme’s question regarding “financial intermediaries”, Ms Bam said that a financial intermediary could be any individual or entity involved in the sale or distribution of a financial product or service, including brokers, insurance salesmen, banks and insurers. There were three grounds for the dismissal of complaints -- because they were prescribed, they did not have merit, or the complaint came before 30 September 2004. The FAIS ombud had come into existence only in 2003, therefore its jurisdiction was limited to the period after the entity came into being. Some policies may have been entered into before 30 September 2004, but these policies fell outside of the ombud’s jurisdiction.

Referring to the scope of the ombud’s jurisdiction in handling complaints, Ms Bam said that the ombud was concerned with the provision of advice where there was an aggrieved consumer. In many instances, financial service providers offered customers standard term contracts, where there the consumer had little power to negotiate the terms of the contract. In terms of the FAIS Act, these customers should be given meaningful and fair advice. When this was not the case, then the consumer could look to the FAIS ombud. However there were other statutory ombudsmen responsible for complaints pertaining to the terms of contract.

Ms Bam responded to Dr. Mateme’s question relating to the principle of equity at the FAIS ombud, and said that the graduate trainee programme sought to identify not only individuals with law degrees, but agents for change in South African society. However, the notion that those who had been excluded previously should get more did not filter into the ombud’s complaints resolution process. In this regard, the ombud had to do what was equitable and fair in all instances.  

She said the lack of an organogram in the presentation had been because the FAIS ombud had not wanted to waste the Committee’s time.

The Chairperson pointed out, however, that the organogram formed part of the annual performance plan, so the ombud should submit the document.

Regarding the attractive advertising of financial products, with little emphasis on the “fine print”, she said that the ombud had received complaints pertaining to the misspelling of these products, but not every complaint could be entertained under the FAIS ombud’s jurisdiction.

The Chairperson said that in the report on the “Twin Peaks” model for financial sector regulation, one of the aspects emphasised had been financial education. Was the ombud promoting this? If so, what had been done?

Dr Mateme asked whether the FAIS ombud had offices at the provincial, district or municipal levels. Since its establishment, had the entity conducted an awareness campaign to promote its services?

Mr Motlashuping said that the timeframe attached to the ombud’s jurisdiction was particularly restricting, considering the gravity of the situation involving ABSA bank. Certain Acts were prejudicial to the people, and Members should be careful as legislators about passing Acts with such a restriction.

The Chairperson assured Mr Motlashuping that the matter involving ABSA would receive the necessary attention. The matter was in the public domain, and there would be procedures for handling the situation.

Mr Gaehler said that it may be necessary to re-look at the FAIS Act, as there appeared to be loopholes and gaps in the jurisdiction of the Act. For this reason, the Committee should not blame the ombud for issues falling outside its jurisdiction.

The Chairperson thanked the delegates from the FAIS ombud, and said that the Committee should see the entity on an annual basis. The FAIS ombud was a major role player in terms of the “Twin Peaks” model for financial sector regulation, so an annual discussion would be necessary.


Committee matters

The Committee adopted the minutes for the meetings on 7 and 14 June 2017.

Mr Essack asked whether Dr Mateme was a member of the Select Committee.

The Chairperson said that this question was not a matter for the agenda. Any Member of Parliament could attend any meeting if they so chose.

The meeting was adjourned.

 

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