Financial Services Ombud Schemes Bill: hearings

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Finance Standing Committee

11 October 2004
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Meeting report

FINANCE PORTFOLIO COMMITTEE
12 October 2004
FINANCIAL SERVICES OMBUD SCHEMES BILL: HEARINGS

Chairperson:

Dr R Davies (ANC)

Relevant Documents

Financial Ombuds Scheme Bill [B20-04]
Submission of Vorster Pereira Attorneys
Submission of Banking Council South Africa
Banking Council South Africa PowerPoint submission
LOA submission
Ombudsman for short term insurance submission
Ombudsman for banking services
JSE submission
Main memorandum prepared for consideration by the parliamentary committee on finance by the Ombudsman for Long-term Insurance
Annexure A to the main memorandum prepared by the Ombudsman for Long-term Insurance

SUMMARY
The Committee heard submissions on the Financial Services Ombuds Schemes Bill. Throughout it became obvious that Clause 13(2) would create unnecessary problems. It would deprive voluntary schemes of the jurisdiction to deal with matters directed to them by people who chose to have their disputes dealt with by the schemes. The Committee felt that consumers should not be deprived of the right to choose the forum in which their disputes would be addressed.

The presenters argued that one of the strengths of the voluntary schemes was the fact that they were closely focused and tightly organised. All of them were generally recognised by the industry and the media to function efficiently and to be cost-effective. Their strength lied in their flexibility, their adaptability because of an absence of rigid regulations and in particular, the voluntary nature of their operations.

The presenters made a plea that the schemes should be allowed to operate as they did before. There should be an understanding between schemes that they would accept each other's adjudication. The consumer should be allowed to choose any forum. Forum shopping was bad and should not be allowed to happen.

Vorster Pereira Attorneys were concerned with Clause 15(1) of the Bill that provided for the suspension of any applicable time barring term or proscription. The Banking Council's main issue concerned the removal of the jurisdiction of the voluntary ombud. The Committee raised questions relating to the jurisdiction of the statutory and FAIS ombudsmen and the role of the statutory ombud. The difference between a regulator and a statutory ombud was also discussed. The need for consumer awareness and education was also highlighted.

MINUTES
Mr M Moeletsi (Member of Council of Ombudsman for Long-term Insurance), Mr Justice P Nienaber (Ombudsman for Long-term Insurance), Mr J Dixon (Chief Director: Financial Policy: National Treasury), Mr G Anderson (FSB: Deputy Executive Officer), Dr F Van Zyl (FSB: Legal Department), Mr L Wessels (FSB: Legal Department), Mr J van Zijl (Ombudsman for Short term insurance), Advocate L Balakrishna (Manager: Complaints Administration Department: Ombudsman for banking services), Ms E van Vuuren (JSE: Legal Counsel), Mr G Joubert (LOA: Executive Director) and Mr J Davey (both from Life Office's Association), attended the meeting. The Committee heard submissions on different aspects of the Bill.

Submission by Ombudsman for Long-term Insurance
Mr Nienaber said that the Office of the Ombudsman for Long-term Insurance was established in 1984. The aim of the scheme was to help people in dealing with large financial institutions.

Mr Moeletsi said that ombuds officials were appointed by the Council for the Office of the Ombudsman for Long-term Insurance. The Council was independent from the industry and had reputable members representing consumers. The Financial Services Board (FSB) played a role in the Council. Only two out of ten members of the Council were connected to the insurance industry. This was important for the independence of the scheme. The ombuds office was accountable to the Council. The fact that the Office was funded through levies from members did not compromise the independence of the Office. He recommended the recognition of voluntary schemes as they rendered fair and impartial services to consumers. The standard of professionalism displayed by the Office had resulted in benefits for consumers. Their matters were resolved and large sums of money were also saved.

DiscussionMs R Taljaard (DA) said that the Long-term Insurance submission said that there was a distinction between the principle underlying Clause 13(2) and its formulation. She asked if the formulation were to change there would be no difficulties with the principle. There was also a crucial concern around the composition of the Council and the extent to which it would have power over voluntary schemes. The Registrar of the FSB would also remain an ex officio member of the Council. The role of the voluntary schemes would be circumscribed by virtue of the fact that the Council would regulate every single step taken by the schemes in detail.

Mr Nienaber replied that it had never been suggested that the Council should have an overriding function whereby it would prescribe to voluntary schemes. The Bill should be drafted to exclude the manipulation of clauses to give the Council the opportunity to prescribe to voluntary schemes.

Ms B Hogan (ANC) said that she did not understand the Bill. There were already the statutory ombud as established by the Financial Advisory and Intermediary Services Act (FAIS) and the pension fund adjudicator. She said that the Bill intended to give legal recognition and backing to voluntary schemes. There would be co-existence between voluntary and statutory schemes and this would raise questions of jurisdiction. It would be difficult for members to know the correct forum to refer their disputes to. In their submission the office of the Ombudsman for Long-term Insurance referred to an understanding that initially prevailed on resolving the jurisdictional issue. The voluntary ombudsman schemes would deal, as before, with all finance-related complaints against subscribing members and their employees and agents. The FAIS ombud would deal with all advice-related complaints against non-subscribing institutions and brokers. It was very difficult to understand the distinction between advice-related complaints and finance related complaints. The two were usually closely intertwined. She asked if a jurisdictional question would no longer arise if Clause 13(2) was deleted and what voluntary schemes would deal with it if the clause were not deleted.

Mr Nienaber replied that if Clause 13(2) was retained the FAIS ombud would deal with all complaints falling under his jurisdiction in terms of the FAIS Act. The pension fund adjudicator would deal with all matters under his jurisdictions and voluntary schemes would be precluded from dealing with any such matters. This situation would be problematic. If the clause were deleted voluntary schemes would deal with matters referred to them provided they fell under their jurisdictions.

Dr Davies asked what would happen if a consumer went to a voluntary scheme, received an unfavourable ruling and then went to the FAIS ombud.

Mr Nienaber replied that there should be an understanding between schemes that they would accept each other's adjudication. The consumer should be allowed to choose any forum. Forum shopping was bad and should not be allowed.

The Chairperson said that there were jurisdictional concerns during the initial briefing on the Bill. One did not want consumers to go to one ombud and be told that the complaint did not fall under that ombud's jurisdiction. The Committee wanted an obligation to be placed on any ombudsman to direct the complaint to the relevant forum. The submission seemed not to cover this aspect.

Mr Nienaber replied that one of the strengths of the voluntary schemes was the fact that they were closely focused and tightly organised. All of them were generally recognised by the industry and the media to function efficiently and to be cost-effective. Their strength lied in their flexibility, their adaptability because of an absence of rigid regulations and in particular the voluntary nature of their operations. The voluntary nature of the relationship between it and the members of the industry who subscribe to the scheme was a particular strength. In their particular case some 98% of all registered insurers in South Africa, based on asset value, were subscribing members. Subscribing members submitted to the jurisdiction of the ombudsman and to adverse rulings by him precisely because they were free to depart from the scheme if the schemes should not operate fairly and efficiently. Compliance was contractual, not compulsive or confrontational. Rulings, though sometimes painful and expensive to subscribing members, were almost always accepted without rancour. Provided an office maintained levels of excellence and was objective and vigorously independent, the contractual obligation would be accepted by the industry and it would continue to do so as long as the office continued to be respected. It would be sad and a loss if the Bill, as an unintended consequence of the implementation of its provisions, was to erode rather than reinforce the above mentioned strengths of the voluntary schemes. The Office was well known to consumers. The Office fulfilled an essential function and should not be inhibited by the Bill.

Mr Nienaber said that there were three misconceptions about the Office. The first one was that the Ombudsman was appointed by the industry and therefore was not impartial. This was not true as Mr Moeletsi indicated. The appointment was also not influenced by the industry. All ombudsmen were retired judges and this ensured the independence of the Office.

The second misconception was that the Office was funded by the industry and therefore was not truly independent of its participants. It was believed that this made it possible for the Office to be influenced by the industry.

The third misconception was that the determinations of the Office were merely recommendations which subscribing members could choose to ignore. This was also not true. In terms of the rules of the scheme a determination made by the Ombudsman shall be binding on the subscribing member concerned and shall not preclude the complainant from thereafter instituting legal proceedings against a subscribing member in respect of any such complaint.

Mr Nienaber said that his Office strongly supported the Bill. It was right that voluntary schemes should be recognised and that unregistered schemes should not be allowed to operate. It was also right that registered schemes that did not continue to fulfill the requirements for registration should be suspended and their licenses withdrawn. He supported the principle in the FAIS Act that the FAIS ombud should have jurisdiction to investigate disputes regarding advice related cases. The difficulty was that Clause 13(2) would create unnecessary problems. It would deprive voluntary scheme of the jurisdiction to deal with matters directed to them by people who chose to have their disputes dealt with by the schemes. Consumers should not be deprived of the right to choose the forum in which their disputes would be addressed.

The clause would deprive consumers of the right to draw from the reserves of goodwill and reputation of fairness and consistency that the Office had built over years. Unlike the pension fund adjudicator, the Office had equity jurisdiction. In the past the pension fund adjudicator had referred matters that he could not deal with to the Office because it had equity jurisdiction. If for instance, a defence of proscription was raised, the pension fund adjudicator could not deal with the matter. Without denying the availability of the defence, the Office could contact the insurance company and convince it not to rely on the defence.

As a result of the clause much time would be spent of deciding jurisdictional issues. This would cause delays and unnecessary tensions. Voluntary schemes should be allowed to operate as they did before. It served no practical purpose and created problems for a system which was operating smoothly and efficiently. He requested that the clause should be deleted. He supported LOA's submission in respect of Clauses 3, 8(1)(d), 11(5)(b) and (c) and 13(2), (3) and (4).

Mr Dixon said that the overall objective of the Bill was to increase consumer protection by increasing access to a cost effective consumer recourse mechanism. Nobody was challenging the effectiveness, impartiality or independence of voluntary schemes. There was a clear recognition of the good work of the schemes and such work would not be undermined. It was useful not to overstate the scale of the problem. Clause 13(2) would deal with cases wherein there would be overlaps between the FAIS ombud in terms of dealing with advice-related complaints and where advice-related complaints were brought to the attention of voluntary schemes.

He noted that Mr Nienaber suggested allowing consumers to choose the forum to decide their matter. Although this was good, the problem was that this would result in uncertainty and ongoing disputes about jurisdiction. There might not be consistency in treatment and forum shopping might result. There was a risk that industries might form their own schemes as a way of evading the standards introduced by the statutory ombuds.

Mr Anderson added that the FAIS Act and codes drawn in terms of the Act became fully operational at the end of September. The codes were aimed at providing advice on what financial services providers might do. Clause 13(2) was aimed at demarcation. The pension fund adjudicator would look after pension fund matters and the FAIS ombud would look after advice-related complaints.

Mr Wessels added that Clause 13(2) was not intended to mean that the statutory ombud would do everything.

Submission by the Ombudsman for Short-term Insurance
Mr van Zijl said that his Office provided a service to consumers. It was funded through debiting each insurer per complaints. It received about 460 complaints per month and the turn over was three months. It had managed to recover R23.6 million for consumers. Its jurisdiction extended to matters of equity. In every letter of repudiation of a claim insurance companies should refer to the fact that a consumer could refer the matter to the ombudsman.

DiscussionMs Hogan said that if Clause 13(2) was retained the FAIS ombud would deal with advice-related matters. She asked the presenter to give examples of issues that would be referred to voluntary schemes.

Mr van Zijl replied that there were not many problems where a short-term insurer gave advice. He was happy that he would still deal with companies that sell products directly to consumers.

Ms Taljaard said that at one stage the National Treasury walked away from the financial services ombud schemes legislation because it perhaps thought that the FAIS Act would have acted as a catch-all. If this was the thinking at one stage, why was this legislation brought back?

Mr Dixon replied that the aim was to improve the framework for consumer protection and recognise the work of voluntary schemes. Another aim was to fill gaps wherever they existed. The FAIS ombud was not a catch-all in the sense that it would do the work of voluntary schemes. There was no thinking to hold the legislation back in the hope that the FAIS ombud would cover all complaints. The draft Bill was withdrawn because of the issue of jurisdiction.

Ms Hogan asked how easy it was for a consumer to decide that an issue was advice-related and therefore should be referred to the statutory ombud. The problem of deciding such an issue should not be transferred to a consumer. It was difficult to see how consumers would be sure that their disputes would not be transferred from one person to another without any progress.

The Chairperson agreed that the consumer should not have to deal with the issue of jurisdiction. Should a consumer approach a wrong scheme with a complaint there should be a mechanism whereby the complaint would be transmitted to the right forum without the consumer having to suffer. He was not persuaded that the consumer should decide which forum should hear the matter.

Ms J Fubbs (ANC) noted from the input from National Treasury and FSB that the purpose of the Bill was not to do away with voluntary schemes. Her understanding was that the Bill would do away with them. She was concerned that it would be possible for a consumer to go to one or two forums. There might be a problem of the same issue being decided differently by different schemes. She asked how one could ensure that the same decision was handed down on similar issues.

Mr Dixon reiterated that the aim of the Bill was not to undermine voluntary schemes. There should be a seamless treatment of complaints in appropriate forums. There were differences in terms of procedures and the powers of the different schemes.

Mr Nienaber said that there would be no confusion if voluntary schemes were allowed to operate as they had before.

Submission by Ombudsman for Banking Services
Advocate Balakrishna shared the possible difficulties that the Ombudsman for Banking Services might experience as a result of Clause 13(2). Between January and October 2004 the help desk of the Ombudsman for Banking Services had dealt with 9 960 inquiries. During the same period, subsequent to the receipt for formal applications for assistance, it had opened 2 138 files. A call would come through to the help desk and the receiver of the call would try and establish if the matter was under their jurisdiction. If it did an application form would be sent to a complaint to complete. Some of the over 7000 thousand complaints that were not accounted for where referred to relevant forums whilst settlement for others was facilitated without the need for completing assistance application forms. Complaints were normally resolved upon receipt of the application form. The Office was located in close proximity to the head offices of major banks. This allowed for complaint files to be delivered to banks within two days.

The Office's concern with Clause 13 was that too much time would be wasted on establishing jurisdiction especially in cases where a case had interwoven aspects, some of which might fall under the FAIS ombud. Staff at the help desk would have to turn consumers away in fear on contravening the Bill. In cases where the Office would not be able to establish if it had jurisdiction it would have to ask for more information from the complainant and this would be time consuming.

Ms Taljaard noted that Clause 8(2) gave the Council powers to issue guidelines to inform clients of the jurisdiction of different ombuds and of procedures for the submission of a complaint. She did not think this was wise. She asked for a comment on this.

Advocate Balakrishna replied that it might not be an ideal situation but was better than a statutory ombud being a judge in his own cause. It should not be one of the parties involved in the jurisdictional dispute.

Ms Fubbs noted from the submission that the clause was monopolistic. The Banking Ombudsman was unsure who would be the option when it comes to dealing with a particular issue and how long it would take to resolve issues of jurisdiction.

Advocate Balakrishna replied there was no monopoly under the current arrangement. There were arrangements on how to deal with matters falling between the cracks.

Mr Y Bhamjee (ANC) asked what happened to applications that were not categorised as formal applications given the fact that the banking sector was very hostile to ordinary citizens.

Mr Balakrishna replied that a complaint was formally received on receipt of a completed application form. The form provided information about the complaint and the remedy sought. The form would also contain a contract between the complainant and the Office to allow the banks to disclose personal information to the Office. In cases where a complaint was received telephonically the help desk would contact the bank if the matter could be easily solved. In cases where the matter would be difficult to resolve the Office would request the person to complete the application form.

Mr T Vezi (IFP) said that once a complaint had been received by a scheme a decision would have to be made as to who should decide the matter. He wondered if this would not result in hardship for consumers. He also asked how powerless consumer would receive information on the existence of the schemes.

Advocate Balakrishna replied that there were no problems of jurisdictions based on current working arrangements.

A Member asked how the process of conciliation had worked in the banking industry.

Advocate Balakrishna replied that not all matters were easier to mediate. There was a decline in the number of cases that had gone all the way to arbitration. Customer retention was essential for the banks.

Mr M Durr (ACPD) asked if the Ombudsman was accessible.

Advocate Balakrishna replied that whilst the Office was based in Johannesburg, they had gone to provinces on awareness campaigns. It was very important to ensure that people had knowledge about the existence of the schemes.

The Chairperson asked how confident the presenter was that the process was accessible and friendly to consumers. He said that most of the forms used were bureaucratic and there were also time limits within which they had to be submitted.

Advocate Balakrishna replied that the process could be understood not to be user friendly. There were instances where people had deliberately omitted to complete certain sections of the form. No complaints had been ignored just because a form was not fully completed. A lot of people frequently visited the Office where they were assisted with completing the forms.

Mr Bhamjee noted the submission that it was expected that it would take time for the FAIS ombud to build capacity to deal with complaints speedily. It was suggested that the implementation of Clause 13(2) should be delayed for two years. He wondered if the Office had a problem with the principle contained in the clause or if the problem related to capacity of the statutory ombud.

Mr Anderson replied that the FAIS ombud had structures and capacity in place to deal with the issues.

Johannesburg Stock Exchange submission
Ms van Vuuren said that the Portfolio Committee on Finance had approved the Securities Services Bill. The aim of the Bill was to consolidate different legislation governing the securities industry into one Act. In future one statute would govern the bulk of the JSE's business and operations. The Bill obliges an Exchange to have exchange rules that provide for the equitable and expeditious settlement of disputes between authorised users and authorised clients in respect of transactions in listed securities. The JSE would have to provide a dispute resolution mechanism for disputes between brokers themselves and between brokers and clients. The mechanism should also be provided for in the rules of an exchange. The benefit of this requirement was that the exchange rules were binding on brokers and members of the public. Compliance with the JSE dispute resolution mechanism would be mandatory and not voluntary. The approval of the process of the JSE rules required publication of the rules in the government gazette and the involvement of public comment in addition to FSB approval. The FSB had day-to-day oversight over the operations of the Exchange.

The Financial Services Ombuds Scheme Bill was initially intended to regulate voluntary schemes. The definition of a scheme was limited to voluntary schemes. A number of changes had been made to the Bill resulting in the JSE being included in the ambit of the Bill. The motivation for this was that the Stocks Exchange Act and the Financial Market Act did not deal with dispute resolution sufficiently and the Bill would address this. The Bill also did not require a financial institution to have a scheme. But if a scheme existed it had to meet certain minimum requirements. Another reason given for including exchanges within the ambit of the Bill was to have one consistent approach to the regulation of ombuds schemes.

Ms van Vuuren said that there was uncertainty about the legality of the rules of an exchange under the Securities Services Bill and the rules of the scheme under the Financial Services Ombuds Schemes Bill. The question would be whether the rules would be automatically invalid if they were invalid in terms of one of the Bills. There would also be uncertainty about which legislation would take precedence. There would also be additional regulatory costs to an exchange and investors and also the two regulators who would be regulating the same thing. The reasons for the regulation of dispute resolution schemes of exchanges under both Bills were not compelling. The best ways to achieve uniform regulation was for the registrar of securities services to liaise with the Council when the registrar approved the schemes of exchanges.

Ms van Vuuren noted that it had been suggested that an exchange could apply for an exemption in terms of Clause 18(4). This proposal was not workable because Clause 18(4) did not in fact exempt a scheme from the application of the Bill. The exchange would still have to apply to two regulatory authorities. There was no guarantee that an exemption would be granted. When the Minister exempted a scheme he might prescribe conditions and this opened the door for possible conflicting regulation.

DiscussionMs Hogan said that one was getting close to a dangerous situation where the FSB was legislating on the financial services industry. She asked how the FSB saw the overall view of a dispute resolution mechanism in the industry as a whole. She also asked if dispute resolution had always been approached on a piecemeal basis depending on a piece of legislation put forward.

Mr Wessels replied that the difficulty with the exchanges and Self-Regulatory Organisations (SROs) was that members were not directly regulated. This was the reason why the first Stocks Exchange Act and Financial Markets Act had provided that rules for exchanges be set down and approved by the regulator. The exchange and other SROs in turn regulate their member through those rules. He did not share the view that issue was addressed piecemeal.

Mr Wessels added that the FSB had an overall view as reflected in the Financial Services Ombuds Schemes Bill. The initial Bill omitted the exchanges. It was thought that there was no need for discrepancies. It was not desirable to have legislation that impacted only in one sector of the industry. The Bill was changed to make it imperative that all financial institutions operating a scheme of this nature would be subjected to the law unless there was an exemption. The Securities Services Bill did not specify any kind of dispute resolution mechanism and this was not satisfactory.

The Chairperson said that the Securities Services Bill did not specify the nature of the dispute resolution mechanism. He asked if there would be any problem should the dispute resolution mechanism take the form of an ombuds scheme.

Ms van Vuuren replied that the Securities Service Bill did not specify the nature of the dispute resolution mechanism except that it should be expeditious and effective. One of the reasons for this was that the profiles of exchanges in South Africa were very different. The profiles of the JSE equities and derivatives markets were also different. The derivatives market operated under a formal arbitration dispute resolution mechanism. The types of claims dealt with and the types of participants in the market were very sophisticated. Hence arbitration was appropriate. There would be problems if that scheme were to be approved under the Securities Services Bill and also had to comply with the requirements of the Financial Services Ombuds Schemes Bill. Although the definition of scheme in the Financial Services Ombuds Schemes Bill included arbitration, Clause 10(1) did not deal with arbitration at all.

Mr Dixon said that the aim was to ensure consistency across sectors. All mechanisms should meet certain minimum standards.

Life Offices' Association submission
Mr Davey suggested various amendments to the Bill. (Document attached). Mr Joubert said that the LOA supported the Bill. The voluntary schemes were very important. The LOA did not object to a demarcation provision of some sort provided that it would create more consumer certainty. The concern was with the manner it was addressed in Clause 13(2). Clear demarcation would be very difficult to achieve in practice. Because of difficulties foreseen in Clause 13(2) it was preferable that voluntary schemes should not be disallowed to deal with advice-related complaints. The issue of concurrence jurisdiction would not necessarily cause any confusion. The clause was not necessary and the Bill could stand without it.

DiscussionMr M Johnson (ANC) said that the Bill intended to promote education. The Bill dealt with issues experienced by ordinary people on a daily basis. He asked how one could reach out to the marginalised communities and inform them of the existence of the schemes.

Ms Taljaard asked how the issue of independence in terms of Clause 8 would be resolved. She felt that the submission by the LOA on the clause was convincing.

The Chairperson observed that the LOA's submission seemed to have been based on an earlier draft of the Bill. For instance, the submission said that there was a spelling mistake in Clause 4(2). It was suggested that the word "reappointed" should be changed to "reappointment". He asked how much of the LOA's submission was based on an earlier draft of the Bill. The version of the Bill that the Committee was working on did not have that spelling mistake. He could not understand why the LOA wanted a separated definition of a "FAIS ombud". He felt that the definition of a statutory ombud covered a FAIS ombud. The Chairperson noted suggested formulations of Clause 13(2) and (3). He asked if there would be any need to delete Clause 13(2) if the proposal on subclauses (2) and (3) were accepted.

Mr Davey responded to the question posed by the Chairperson and Ms Taljaard. He said there was concern regarding the definition of the statutory ombud. He said his organisation had no objection to the proposal as it was currently provided in the Bill. The concern was that the FAIS ombud would act in two capacities and there should be a clear delineation in the Act between the two offices; i.e. of the FAIS ombud and the statutory ombud.

Regarding the Chairperson's question, he said the LOA had a problem with Clause 13(2) of the Bill. He said it was difficult to have a clear demarcation between financial services and a financial product and that this could create more problems for the consumer. The client would have to fathom who the ombud was that had jurisdiction.

Mr Vezi was concerned that there was no progress made in trying to educate previously disadvantaged groups. He said that a message should be sent to the banking industry to embark on vigorous attempts to educate the masses.

Responding to both Mr Johnson and Mr Vezi, Mr Joubert said the Financial Services Ombud Scheme Bill was drafted in the interests of the client and consumer and he agreed that consumer education was vital. He noted that the Financial Services Board was also involved in the roll out of its educational campaign. The LOA spent about 20% of its annual membership income on educational matters. Clause 10(1)(h) of the FSOS Bill was an important provision. It was even better to have happy clients who were getting appropriate advice than clients who merely knew where to go to make a complaint. The Financial Advisory and Intermediary Services Act were welcomed because it would deal with a lot of the concerns by taking away the problem.

Dr van Zyl said that an opportunity had been provided to remind the Committee that the Financial Services Board Act of 1990 as amended referred to the provision and facilitation of financial services consumer education. Education was not a once-off initiative and there was a Trust Fund that was engaged with consumer councils in the nine provinces, SA Council of Churches and various other organisations involved with all sectors of the population to bring about on-going consumer awareness and education. There was also a good clause in the Financial Charter that obligated financial institutions to contribute to this fund. On technical issues and in particular the demarcation issues he said his delegation did not agree with some explanations made by the LOA delegation.

Mr Dixon from National Treasury said they would like the opportunity to look at the issues of definition and that this did need greater clarity. On the point regarding the powers of the Minister in terms of regulation, he said they would also like to review clauses with respect to that. Lastly, concerning the LOA proposals he said there could be merit in the proposals relating to 13 (3) and 13 (4). However, his Board did not agree with the proposal that there were advantages in multiplicity of jurisdictions. The issue of deciding jurisdiction was not that much more complex than the jurisdictional decisions which were currently taking place. There would also be very few cases in which the work of the voluntary schemes would be seriously undermined. The existence of a multiplicity of jurisdiction would seriously undermine the existence of the FAIS ombud.

Mr Wessels said the question of the FAIS ombud and the statutory ombud needed to be dealt with. Clause 13 was intended to refer the FAIS ombud proper. In clause 14 it was the same person but acting under a different jurisdiction. The FSB would propose an amendment and would ask the Committee for a ruling to have that proposal submitted so that interested parties could have a look at it.

The Chairperson summarised by stating that the basic definition was that the FAIS ombud was equal to the statutory ombud and the Deputy ombud. Maybe a distinction needed to be made between the two.

Ms Taljaard concerned as to whether the distinction was sufficiently spelt out in the legislation not only for the understanding of the voluntary ombuds but also so that there was certainty in the legislation and also for all the role players.

Mr Durr asked what would happen if someone were to go to an ombud and half way through the process it was found that the issue needed to be dealt with by the FAIS ombud. The complainant should first give his or her consent before the matter could be transmitted to another forum.

Mr Davey replied that the point was a very valid one. He had no problem with adding in clause 13 (3) that the consent of the complaint should have been obtained.

Mr Wessels said the option was there for the client to withdraw a complaint.

Dr Taljaard said that if the Bill was to protect the consumer, why was it that a mechanistic approach would be taken to decide for the complainant what jurisdictional body would have jurisdiction over his/her complaint. If the sole concern was consumer protection why was the decision being taken out of the hands of the consumer.

The Chairperson replied that that was a big question that was not going to be entertained at that stage.

Vorster Pereira Attorneys submission
Mr Mason-Jones of Vorster Pereira Attorneys said his concern was a technical one relating to Clause 15(1) of the Bill. He suggested that the clause be extended to circumstances in which the claim of a client might become time barred as the result of a proscription or expiry period in terms of legislation other than the Proscription Act of 1969. He said it was important to know whether the time period was a proscription period or an expiry period and referred to provisions in Section 7 of the Usury Act of 1968.

Mr Wessel said there would be no harm in following up the proposal. He said he could not think of an ombud (including the price ombud) that would be dealing with money lending transactions where the provision referred to in the Usury Act might apply. The Minister might declare the micro-lending industry as a financial institution and be subject to FSOS and then the submission by Mr Mason-Jones would be relevant.

Ms Taljaard asked if it was normal practice for a suspension in the proscription time subject to the complaint being withdrawn or settled.

Mr Wessels said there was an almost identical provision in the FAIS Act and in the rules of the voluntary schemes. The Chairperson said that this was a matter for the lawyers to sort out in terms of time frames for suspension.

Mr Mason-Jones said this was very important to banks because the borrower could have a claim against the bank, e.g. interest had been worked out incorrectly. He also referred to the difference between an applicable contractual time-barring term that would refer to something that would be binding in terms of a contractual agreement and a statutory time-barring term.

Banking Council South Africa submission
Mr C Coovadia said his organisation supported the voluntary ombud schemes and was also concerned that there were moves afoot to establish a statutory ombud before a decision had been taken on a single regulator.

He said voluntary ombuds offered accessibility, convenience and efficiency and that these offices had serviced consumers. The statutory ombud should only be a recourse in the event of blockages in the efficiency of voluntary ombuds. The recommendation was to delete Clause 13(2) of the Bill and to enable voluntary ombud schemes to continue dealing with matters falling within their terms of reference.

Ms Taljaard said the definition in the Bill meant that FAIS wore two different hats and that this was the direction that things were moving. She also referred to the long title of the Bill that makes one think one is increasing the areas where consumers could go but in terms of the Council and the Bill one was actually reducing this. She was concerned that consumers would have an avenue to which they could complain taken away from them.

Ms Hogan (ANC) said she wanted to be reminded of the role of the statutory ombud. If the voluntary ombuds were going to be doing their work, the statutory ombud would be dealing with advice-related matters and with things that fell between the cracks. If this were so, did the statutory ombud become a magistrate? She said there was a Registrar for the banking service and for securities. In the banking industry, the Registrar was in the Reserve Bank and she asked what the relationship would be between the Registrar and the statutory ombud. This meant that a single Regulator became more important. Securities and banking would then become divided and the issue of the single Regulator needed to be sorted out as soon as possible because there would be major jurisdictional problems if this were not done.

Mr Durr asked if Mr Coovadia thought there was inherent conflict between the office of the statutory ombud and the Regulator. He asked whether the functions of the two were mutually exclusive. Should the statutory ombud be called an ombud at all? The latter wanted to Regulate those who give advice, so would the Statutory ombud not be a Regulator? He said he was very uncomfortable with the way the whole thing was structured.

The Chairperson said the various ombuds needed to meet and try to resolve jurisdiction and pass the complaint onto the right ombud to make a decision.

He said everyone was concerned about the consumer. He said the FSB was saying that there is a law that says in terms of the FAIS Act there is a statutory ombud. He wanted to know what the big ado was about telling a voluntary ombud that he/she did not have jurisdiction in a particular case.

Mr Coovadia said he did not want to discuss which way the issue was going especially as regards the single Regulator. He said there were many different ways in which the banks were being hit by regulation and legislation from different areas of government. He felt that the statutory ombud was being established to take over what the banking ombud was already doing very efficiently. He said his organisation would not have a problem with this if the voluntary ombuds were not doing a good job.

The Banking Council did not see any conflict between Regulator and statutory ombud. The latter would not take over any of the regulatory functions of the bank but rather he/she would take over the voluntary ombud's role. If there were a problem in the settlement of a complaint the voluntary ombud would refer this to another voluntary ombud and if necessary pass it on to the statutory ombud.

Mr Dixon referred to the regulator issue and said this was a red herring and he did not see any conflict between the Regulator and the ombud schemes. The ombud schemes are solely for dispute resolution and they did not regulate market conduct. They were independent and outside of the Regulator and Government.
In terms of the overall picture he reiterated that there would be a structure of Regulators but that this would not impact on the voluntary ombudsmen. He said the statutory ombud was not an appeal mechanism but that it would exist in the gaps where a voluntary scheme did not exist and would not encroach on the work of the voluntary schemes. Lastly, he said that with regard to jurisdiction, the National Treasury and the FSB agreed that the voluntary schemes were doing excellent work and were supported through the FSOS Bill. In the Bill, the FAIS ombud had been given a clear jurisdiction and that having a multiplicity of jurisdictions would undermine the FAIS ombud.

Mr Wessels explained that the FSOS Bill provided an agency between a client and an institution and that there would be little consolation for a client if the regulator intervened and withdrew a licence for example, as the client would be looking for a civil claim. He referred to the two statutory bodies of the Pension Funds Adjudicator (PFA) and the FAIS ombud where there was a certain boundary to these jurisdictions. He said there are voluntary ombud schemes that would get recognition because they would comply. The statutory ombud was needed for financial institutions such as micro-lenders or for endorsers that did not have voluntary schemes, He said a separate office for this could have been created but would have been too costly. The jurisdiction of the FAIS office was therefore extended as one would do with a judge's area of jurisdiction. This was the statutory ombud who would deal with ordinary consumer complaints in cases where one of the voluntary ombuds could not adjudicate.

Ms Hogan said market conduct regulation did not fall under the ombud but that dispute resolution procedures set up by the JSE had to be approved by the Registrar. The JSE was complaining that it would be regulated by two bodies. She also added that neither the banking supervisor nor the SA Reserve Bank had been asked to give input on the matter which she felt was a serious oversight.

The Chairperson asked Mr Wessels if the statutory ombud in Clause 13(2) meant the FAIS ombud. Mr Wessels said this was correct.

Mr Wessels said the JSE issue would be dealt with the following day.

Mr Dixon said that what was aimed at was consistency across the banking sectors.

Dr Davies outlined the submissions for the following day and said that the two big debates were around Clause 13(2) and whether there should be limitation of the jurisdiction of voluntary schemes. The other issue of was that of institutions regulated by the Securities Services Bill (SSB) and whether they should be exempted.

Dr Davies regretted that there had been no submissions from consumers themselves.

The meeting was adjourned.




 

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