The compensation the financial services ombud can award you has increased to a maximum of R3.5m

(Image: LinkedIn)

By Neesa Moodley

2 Jul 2024

Just more than 20 years after the office of the Financial Advisory and Intermediary Services ombud was formed, the limits on the compensation it can award have finally been increased from R800,000 to R3.5-million.

The Ombud Council published new rules for the Financial Advisory and Intermediary Services (FAIS) ombud this week.

Leanne Jackson, chief ombud of the Ombud Council, says 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 office of the short-term insurance ombud has a limit of R3.5-million for all complaints except homeowners or buildings cover, which has a limit of R6.5-million. The office of the long-term insurance ombud does not have a monetary limit. The two offices were incorporated into the Financial Services Ombud scheme earlier this year, along with the banking ombud, and the credit ombud.

“The outdated previous limit (for the FAIS Ombud) compromised the effectiveness of the ombud system by unreasonably restricting access to free, effective, independent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,” she said.

Commenting on the new rules, the office of the FAIS Ombud said complaints involving retirement advice, especially post-retirement transactions involving annuities, often exceeded the previous limit of R800,000. Inflationary effects since 2004 have also seen financial planning advice-related complaints increasingly exceed the original R800,000 jurisdictional limit. The unintended consequence of this was that where consumers had suffered a loss of more than R800,000, the amount of compensation they could be awarded by the FAIS Ombud’s office was limited to R800,000.

Unauthorised advisers to be handed over to the FSCA

Other new provisions include that the FAIS Ombud will not deal with complaints where advice or intermediary services were provided by persons illegally operating without FAIS authorisation. Such complaints will instead be referred to the Financial Sector Conduct Authority (FSCA), which has the power to investigate and take appropriate action.

Jackson is hopeful that this step will encourage consumers to ensure they only deal with authorised financial advisers, so that they have recourse to the FAIS Ombud’s dispute resolution services if things go awry. Another 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. The FSCA can then consider and take appropriate enforcement action.

FAIS (Image: LinkedIn)

This is a heartening step given that the FSCA has become much more proactive in clamping down on undesirable practices in the financial services field. Over the past year the FSCA issued almost R1-billion in administrative penalties (R943-million). This included the significant penalties of R475-million on Markus Jooste for market abuse contraventions, about R216-million on Coenraad Botha and R143-million on Jacobus Geldenhuis. A further R109-million in administrative penalties was levied against 28 people, and 156 debarments issued. A debarment means the financial services representative is banned from providing any financial services to the public.

Read more in Daily Maverick: FSCA clamps down on dodgy funeral parlours over regulatory non-compliance

Companies that once relied on drawing out the complaint process with the ombud to avoid settling a claim, will no longer be able to do so. The rules now 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 means the ombud has the power to resolve complaints, even without the cooperation of one of the parties. DM

Categories:

Tags:

DM is much better if you are signed in...

Business Maverick

Unauthorised advisers to be handed over to the FSCA