The Ombud Council is pleased to announce that it has published the Ombud Council Rules for the Ombud for Financial Services (FAIS Ombud), 2024, on its website on 1 July 2024. The Rules are binding regulatory instruments made under the Financial Sector Regulation Act, 2017 (FSR Act), and come into operation on the date of publication.

The most significant effect of the Rules is to increase the amount of compensation the FAIS Ombud may award for financial prejudice or damage, from the previous long-standing maximum of R800,000 to a maximum of R3,5 million.

The increase is necessary to ensure that the compensation the FAIS Ombud is empowered to award recognises changes in the value of money and market realities since the compensation limit was first set two decades ago. It is also somewhat more consistent with the compensation levels available from other financial sector ombud schemes. The outdated previous limit compromised the effectiveness of the ombud system by unreasonably restricting access to free, effective, independent alternative dispute resolution, and forcing several customers prejudiced by poor financial advice to resort to expensive formal litigation to seek redress. 

The new Rules revoke and replace previous Rules on proceedings of the FAIS Ombud made in 2003 under the Financial Advisory and Intermediary Services Act (FAIS Act). They covered practical procedural matters regarding the operation of the FAIS Ombud’s office. Generally, the new Ombud Council Rules serve the same purpose, although they update outdated terminology, refine aspects of the FAIS Ombud’s jurisdiction, and effect process improvements based on practical experience.

Other new provisions include:

• Providing that the FAIS Ombud will not deal with complaints where advice or intermediary services were provided by persons illegally operating without FAIS authorisation, in contravention of the FAIS Act. An important purpose of financial legislation is to ensure that financial institutions are properly licensed and consumers only deal with those licensed entities. The new Rules state that for a complaint to be considered by the FAIS Ombud, it must relate to a financial service rendered by or on behalf of an authorised provider. The Rules oblige the Ombud to refer complaints about unauthorised business to the FSCA, which has the necessary enforcement and investigative mandate and capacity to consider appropriate action. This reinforces the importance of dealing with FAIS-authorised financial advisers, where one of the benefits of doing so is access to the dispute resolution services of the FAIS Ombud.

• The Rules create clearer consequences for providers that do not cooperate with the FAIS Ombud. A new Rule requires the FAIS Ombud to advise the FSCA of material contraventions of the Rules, or persistent or material failure to cooperate with the Ombud by a financial services provider or representative. Such conduct is inconsistent with a provider’s obligations under the FAIS Act, and reporting this conduct to the FSCA will enable the FSCA to consider appropriate enforcement action. The Rules also grant the Ombud discretion to dispose of a complaint on available facts and information where a party to a complaint fails to respond timeously, or otherwise fails to comply with the Rules. This gives the Ombud some flexibility to resolve complaints, where appropriate, despite a lack of cooperation from one of the parties.

The Ombud Council Rules for the FAIS Ombud are available on the Ombud Council’s website www.ombudcouncil.org.za, together with a statement of need, intended operation and expected impact of the Rules, and a consultation report responding to issues raised during public consultation on the Rules.

The Ombud Council is established by Chapter 14 of the FSR Act with an objective to assist in ensuring that financial customers have access to, and are able to use, affordable, effective, independent and fair alternative dispute resolution processes for complaints about financial institutions in relation to financial products, financial services, and services provided by market infrastructures.

LEANNE JACKSON

Chief Ombud

Issued by Ombud Council

Enquiries: enquiries@ombudcouncil.org.za

1 July 2024