The Office of the Ombud for Financial Services Providers (FAIS Ombud) put a whopping R31.7 million back in the pockets of consumers during the past financial year and resolved 3 543 complaints from those who were not happy with their financial services providers.
The FAIS Ombud recently published its annual report. It shows the office’s successes over the past financial year. The main objective of the FAIS Ombud is to investigate and resolve complaints in terms of the FAIS Act and the Rules.
The complaint must relate to a financial service rendered by a financial services provider or the representative of the provider. Financial services provider refers to any person who furnishes advice or renders any intermediary service.
Advocate John Simpson, the ombud, points out in the report that the new rules for the office were published last year. “The most significant changes were the increased claim jurisdiction from R800 000 to R3 500 000 and that the office no longer accepts complaints against unregistered financial services providers.”
FAIS Ombud resolves more than 3 000 complaints
However, he says, the increased claim jurisdiction did not result in any significant increase in complaints.
“The office did receive large claims in the past and dealt with many of them. The increased jurisdiction made it unnecessary for the financial services providers to consent to the increased claim or for the consumer to abandon the portion of the claim exceeding the limit.
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“No entity or person may provide financial services without being registered and monitoring unregistered providers falls within the regulatory sphere, not the FAIS Ombud. This rule change also encourages consumers to only transact with registered service providers and not to respond to investment scams and false information on social media.”
Simpson says only three determinations were necessary. Two of them were against funeral policy providers that failed to pay claims, despite numerous undertakings to do so.
The office also introduced a ‘premature complaints process’ in 2023 for providers to settle clear and valid claims very quickly, without the need for a lengthy investigation.
During the past financial year, the ombud received 3 382 complaints within its jurisdiction and resolved 3 543 cases for the year. An award was made in 41% of the closed cases (including premature complaints) and R31.7 million in compensation was awarded to consumers. This amount includes settlements.
The FAIS Ombud’s annual report also contains a number of complaints and how they were resolved that shows how the law works and what consumers can do to avoid ending up with the same kind of complaint. We had a look at a few of them:
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Consumer pays for scammer’s unit trust investment
In a reckless case of identity theft, a scammer opened a unit trust investment in a consumer’s name with a financial service provider. Monthly debit orders for the investment were deducted from the consumer’s bank account without his consent or knowledge.
In addition, the service provider paid out funds from the investment account to the scammer. The consumer requested that the service provider refund the payments that were fraudulently withdrawn.
Although the service provider said that due diligence verification was conducted, it was unable to provide any evidence, while it also offered to repay only the funds remaining in the investment account.
As a licensed financial services provider, the company must comply with the record-keeping provisions under the FAIS Act and the Financial Intelligence Centre Act, including retaining and providing records of client onboarding processes.
The ombud’s office recommended that the service provider return all the funds to the account from which it was unlawfully debited, as it had no legal basis to retain or pay out any funds from the account.
The service provider agreed to refund all the debited funds and repay the R67 000 that was paid out to the fraudster.
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No second tracking device, no payout
In another case, a consumer complained that his insurer repudiated his claim after his Toyota Fortuner was stolen. His claim was rejected because he did not comply with the policy condition that requires certain high-risk vehicles to be fitted with a second tracking device since 1 April 2023.
However, the consumer argued that he was not made aware of this new requirement and maintained that, until receiving the repudiation notice, he had only ever been informed that a factory-fitted alarm, immobiliser and a CIB-approved tracking device were required, which he complied with.
The insurer claimed it emailed policyholders about the new requirement on 1 March 2023 and provided a copy of the message sent to the consumer’s wife’s email address. However, the consumer was the sole policyholder since July 2020 and consistently communicated with the insurer from his own email addresses. He denied ever receiving any such notification.
The insurer acknowledged it used the wife’s email address recorded in its system and that no follow-up call was made to confirm receipt of the communication, an additional step that was intended for all affected clients. In addition, the insurer said this was the only case where the follow-up process had failed.
By failing to review and update the consumer’s contact information, the insurer did not adhere to reasonable standards and the provisions of the General Code of Conduct for Authorised Financial Services Providers and Representatives.
The ombud upheld the complaint and ordered the insurer to pay the consumer R681 250, the sum the vehicle was insured for, plus interest at a rate of 11.25%. The insurer paid the full amount.
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Claim for funeral policy refused
Another consumer complained to the ombud that the insurer where he took out funeral cover, with a benefit amount of R20 000, refused his claim when he claimed a few years later. The insurer said it was involved in a dispute with the policy’s underwriter and blamed the underwriter for the non-payment.
The underwriter said it had sent the insurer a notice of termination of services due to its non-payment of premiums and fees for a six-month period. Confirmation of cover and policy inception could only be provided upon receipt of the first premium for that particular risk period.
The insurer’s failure to pay over policyholder premiums from August to November 2022 resulted in no insurance risk cover for the same period. No coverage was confirmed for any policyholders as no risk was assumed.
The underwriter said the insurer was unlawfully sending claims and informing its clients that the underwriter was the one withholding payment. It appeared that the insurer was unlawfully issuing policies and accepting premiums without being underwritten.
Therefore, the ombud found that the insurer is solely responsible and liable for paying the claim, as the insurer’s dispute with the underwriter regarding the payment of premiums did not constitute a valid defence.
The insurer was still registered as a financial services provider at the time the complaint was lodged with the ombud’s office. The subsequent suspension of the licence did not affect the office’s jurisdiction to adjudicate on the matter.
The ombud ordered that the insurer pay the claim amount of R20 000 with interest. The insurer did not file an application for a reconsideration with the Financial Services Tribunal and the determination was subsequently filed as an order of the court.
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Where did the rest of my investment go?
A consumer complained to the ombud that a part of his investment vanished after he told his broker that he wanted to invest R3 million and receive a monthly income of R20 000 without any loss of capital.
However, after the investment was made, the consumer encountered numerous problems with the investment, such as a R70 000 discrepancy, R120 000 deducted from the capital and repaid with minimal interest and documents he denied signing. He also complained that he suffered a capital loss of R400 000, contrary to his instructions.
The broker said the consumer signed a full discretionary mandate and agreed to investments aligned with a 7+ year horizon and moderate risk. It claimed that the consumer withdrew approximately R480 000 as income and R900 000 for an offshore investment.
The investments were within his stated risk tolerance and profile, all fees and changes were disclosed and the capital loss was due to unsustainable income withdrawals of 8 to 9.5%.
The ombud said that the investment return required to sustain a withdrawal rate of 9.5% was not realistically achievable. The broker should have warned the consumer about excessive withdrawals at the outset and should have informed him that his capital was being eroded.
However, the broker could not provide any evidence of proper annual reviews being done as required by the Code. The ombud’s office recommended that the broker propose an overall settlement of the dispute. After extensive engagement, a final settlement of R75 000 was agreed on and the consumer accepted it.
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