1. Presentation to the Standing Committee on Finance by the Voluntary Ombudsman Schemes on the Financial Sector Regulation Bill
03 May 2016 1

2. Introduction
We are thankful for the opportunity to present to the Standing Committee.
The Voluntary Ombud Schemes are made up of the following entities and are represented here today by the following Ombudsman:
Ombudsman for Long-term Insurance – Judge Ron McClaren
Ombudsman for Short-term Insurance – Adv Deanne Wood
Ombudsman for Banking Services – Adv Clive Pillay
Credit Ombud – Mr Nicky Lala Mohan

3. What the Voluntary Ombudsman are about – setting the scene
Complaints are resolved by investigating matters according to the rules of the scheme. If the matter has not been resolved by negotiation after investigation, a formal decision may be taken. The decision may be in the form of  a recommendation that is not binding on the scheme member or a determination that is binding on the member.
All are accredited by the Financial Services Ombud Schemes Council in terms of the Financial Services Ombud Schemes Act 37 of 2007 (“FSOS ACT”).
All have independent Boards, comprising of non executive independent representatives in the majority and industry representatives in the minority.
The Independent Boards appoint the Ombudsman

4. What the Voluntary Ombudsman are about – cont.
The Industry is charged fees or levies
All are non-statutory schemes with participation determined by the respective industry codes
All have the necessary industry expertise and the necessary qualified staff
Each Ombud has a clearly defined jurisdiction
All offer services free of charge to consumers
All subscribe to principles Fairness, Independence, Accountability and Accessibility and Impartiality

5. What the Voluntary Ombudsman are about – cont.
All enjoy Equity Jurisdiction, i.e. outcomes are not limited to determinations based solely on legal principles
All have the power to make determinations that are binding on Industry
All are answerable to their Independent Boards and not to Industry

6. What each Ombud does 1. Ombudsman for Long-term Insurance
Current Ombudsman: Judge Ron Mc Laren
Date of Establishment: 1985
Industry: Long-term Insurance Industry
Jurisdiction: Complaints against subscribing members about long-term insurance policies
Volumes of cases closed in 2015
Full cases: 3 491
Other cases: 1 043
Total 4 534

7. 2. Ombudsman for Short-term Insurance
Current Ombudsman – Adv Deanne Wood
Established - August 1989
Industry - Short-term insurance
Jurisdiction
Motor
House owners (Buildings)
Householders (Contents)
Cell phone
Travel
Disability
Credit protection insurance
Commercial Insurance on a Limited basis, i.e. claimants such as small businesses, including a sole proprietor or trader, a juristic person, partnership or trust that has a turnover in the last financial year of less than R25 million. Claim disputes, which the Office can assist with, include fire and allied perils, glass, theft, motor, travel, sickness and accident and SASRIA claims (affiliated to the aforesaid covers).
Volumes
Approx cases closed in 2015

8. 3. Ombudsman for Banking Services
Current Ombudsman – Adv Clive Pillay
Established in 1997
Industry –Banking
Jurisdiction - The Ombudsman for Banking Services (OBS) resolves individual complaints about banking services and products. Any bank customer who has a complaint against his or her bank may approach the OBS for assistance.
Volumes –
Cases opened in 2015
Closed cases in 2015

9. 4. Credit Ombud Current Ombudsman – Mr Nicky Lala Mohan
Established in 2004.
Industry – Credit Bureaus and all their subscribers; Non-bank credit industry (retail furniture and clothing, micro lending, non-bank motor and home financiers)
Jurisdiction - The Credit Ombud resolves complaints from consumers and businesses that are negatively impacted by credit bureau information or consumers’ disputes with their credit providers.
Volumes cases closed in 2015

10. Comments on the Financial Sector Regulation Bill, Chapter 14 - Ombuds
We fully support the proposals as contained in the Bill We do however have the following comments to make and set out suggestions regarding the clarification of certain matters and the improvement of some sections.

11. Omissions
We suggest that the following provision of the 2014 Draft Bill (Financial Sector Regulation Bill, – 10 Dec 2014) should be retained with the necessary adjustments:
The preamble to the Bill contains the following objective: “…to require financial product and financial service providers to members of, or to be covered by appropriate ombud schemes…” .
It appears to us to be an oversight that the Bill does not contain a section which gives effect to the purpose expressed above and such section should be included.
We suggest the wording of the 2014 Bill: “
Definition of “industry ombud scheme”: this definition should include an exclusion from its ambit of internal complaints resolution arrangements established by financial institutions.

12. Omissions cont.…
Section 190(1), (2)(b), Section 192(2) & Section 195(1), (2) and (5) of the Bill should be retained.
Section 190(1): sets out the jurisdiction of the different ombuds.
We quote the wording of the 2014 Bill below for ease of reference:
Jurisdiction
“190. (1) The ombuds referred to in this Act have the following jurisdiction:
(a) The Adjudicator and the Ombud for Financial Services Providers have jurisdiction as set out in the respective provisions of this Act;
(b) an ombud of a recognised scheme has the jurisdiction provided by the terms which govern the operation of the scheme and the terms of reference of the ombud; and
(c) the statutory ombud has jurisdiction in respect of matters as contemplated in section 191.”

13. Omissions cont.…
Section 190(2)(b): there is an obligation on an ombudsman’s office to send complaints that fall within the jurisdiction of another ombudsman’s office to that office.
“190(2) (a) …….
(b) If an ombud of a recognised scheme, the Adjudicator or the Ombud for Financial Services Providers does not have jurisdiction in respect of a specific complaint, that ombud, Adjudicator or Ombud for Financial Services Providers must submit the complaint without undue delay to–
(i) the ombud of a scheme which does have jurisdiction; or
(ii) the Council, if the matter falls within the jurisdiction of the statutory ombud,
and must advise the financial customer accordingly”

14. Omissions cont.…
Section 192(2): the rights of complainant to seek legal redress are not affected by the Bill.
“192(2) No provision of this Act affects any right of a financial customer or other affected person to seek appropriate legal redress by virtue of the common law or statutory law, before or after the consideration of a complaint by an ombud.”

15. Omissions cont.…
Section 195(1): financial institutions cannot participate in ombudsman schemes that are not recognised.
Section 195(2): such participation is null and void
“Prohibition and exemptions
195(1) Notwithstanding any other law, no financial institution may–
(a) participate in a scheme; or
(b) require or invite any financial customer to submit a complaint in terms of any scheme,
the scheme is a recognised scheme or a statutory scheme or the financial institution is exempted from compliance in terms of subsection (4).
(2) Any participation, requirement or invitation in contravention of subsection (1) is null and void. “

16. Omissions cont.…
Section 195(5): financial institutions cannot use terminology for in-house complaints handling arrangements that give the impression that it is an ombudsman scheme.
“195(5) (a) No financial institution may use a name or description in respect of any internal complaint resolution arrangement referred to in paragraph (a)(ii) of the definition of “scheme” in section 1(1), which represents or constitutes a “scheme” as so defined, unless the financial institution–
(i) has been authorised by the Council to do so; and
(ii) complies with the conditions determined by the Council.
(b) A financial institution that contravenes any provision of paragraph (a) is guilty of an offence and on conviction liable to a fine not exceeding the prescribed amount.
(c) Financial institutions not in compliance with this section, must be compliant within 18 months from the date fixed by the Minister in terms of section 243.”

17. Omissions cont.…
Section 10(1)(e)(iv) of the Financial Service Ombud Schemes Act, No. 37 of 2004 (FSOS Act) requires an industry scheme to apply principles of equity.
We do not regard sections 174 and 199(1) of the current Bill as giving sufficient recognition to this principle. 1

18. Section 194 – Determination of Applications
Sub-section (2)(a) states that “the Ombud Regulatory Council must not recognise an industry ombud scheme unless satisfied that a significant number of relevant financial institutions are or shall, on the industry ombud scheme’s being recognised, be members of the industry ombud scheme”
Reference to “a significant number of relevant financial institutions” is vague and open to different interpretations.
We recommend that the reference should be to “a significant number of relevant financial institutions, based on asset value, gross income or financial customer base (as the Ombud Regulatory Council may determine in general or in a particular instance) in a particular category of financial institutions are or shall….”
Sub-section (2)(b)(ii) should be tidied up and should read “make adequate and appropriate provision for consumers to lodge complaints”, instead of “making complaints”.

19. Section 194 – Determination of Applications conti…
The “governing body” of an ombudsman scheme is defined as being “the persons or body of persons that manage the affairs of the ombud scheme”.
The provisions of section 194(2)(b)(iii) are compatible with the definition of “governing body”. It may be that the references to “a committee” in section 194(2)(b)(vi) and (vii) are errors and that the references should have been to “a governing body”.
The only members of any ombudsman scheme are companies and not individuals. As section 194(2)(b)(vi) currently reads, it prohibits a company from serving on a governing body. However, individuals and not companies serve on governing bodies.

20. Section 194 – Determination of Applications conti…
Section 194(3) deems a non-response from the Ombud Regulatory Council after 3 months to be a refusal to recognise a scheme.
It is suggested that sub-section (3) be deleted as it appears to us to offend against administrative justice as it removes accountability for proper decision making and giving reasons for a refusal.

21. Section 196 – Suspension of recognition
Section 196(1)(c) over-broadly refers to “if a significant number of financial institutions that are members of the industry ombud scheme…” and the reference to “ombuds” therein appears to be an error.
The reference to “if a significant number of the financial institutions that are members”, could be problematic as “the ombuds for the industry ombud scheme” have no control over the business practice of financial institutions and could be held accountable for their (financial institutions) actions by withdrawal of recognition of the scheme.
This provision seems to be inappropriate. If the financial institutions contravene the laws, the regulatory action should be directed against them.

22. Section 199 – Rules of the Ombud Regulatory Council
We suggest that any rule made by the Ombud Regulatory Council should be done in consultation with the relevant ombudsman or ombudsman scheme.
Section 199(4) provides that no rule of the Ombud Regulatory Council may “interfere with the independence of an ombud or the investigation or determination of a specific complaint”.
The above section empowers the Ombud Regulatory Council to make rules in relation to “dispute resolution processes”, in other words to prescribe how a complaint should be resolved.
We believe that section 199(2)(e) thus impinges on the independence of an ombudsman and suggest that it should be deleted

23. Section 200(1) – Directives of the Ombud Regulatory Council and section 203 - Debarment
Section 200(1) refers to a “financial sector ombud scheme” which is not a defined term. It should refer to “industry ombud scheme”.
Section 203(9) states that “an ombud scheme that becomes aware that a debarment order has been made in respect of an individual employed or engaged by the ombud scheme must take all reasonable steps to ensure that the order is given effect to”.
We question the need to debar an individual employed or engaged by the ombudsman scheme as this can be dealt with by the ombudsman himself/herself

24. Section 26 – Ombud Schemes
Cross-referencing of the various sections quoted therein is not correct as it refers to inappropriate sections.
The penalties and sentences for any offence should be appropriate – the proposed fines and sentences seem excessive and should be reconsidered.

25. Current Objectives and Initiatives undertaken by the Voluntary Ombud Schemes
The various Ombuds have embarked on initiatives to bring the schemes in line with International trends and best practices
The four Offices meet regularly and working together, they have focused on the following aspects:
Promotion of greater awareness amongst consumers about Ombud Schemes
Targeted consumer education through radio/television interviews, seminars, press releases and publications
Interaction with Industry to improve complaints handling and practices
Identification of systemic issues
Each Ombud does extensive marketing and promotion about the existence of their offices
Certain Ombuds make it compulsory for their members to promote the Ombuds Office – Codes of Conduct.

26. Transparency and Accountability of Ombuds
All four Ombuds are accountable to their Independent Boards
All four Ombuds publish clear details about their powers and procedures, e.g:
Website reference
Promotional leaflets and other publications
Telephonic advice to consumers
Annual reports

27. Transparency and Accountability of Ombuds conti…
Each Ombud publishes an Annual Report, as per the FSOS Act requirements, which deals with:
Mission and Vision
Details about Board membership and structure
Case studies
Details of the number and subject matter of the disputes
Details on Consumer Awareness and Education
All relevant statistics
Details of staff
Financial reports

28. Submission of Complaints
All four Ombuds have established a referral protocol
There is a Centralised helpline – (OMBUDS)
Full support for the proposed Ombud Regulatory Council’s powers to determine jurisdiction iro complaints that don’t fall within a clear jurisdiction
The Ombuds are establishing a standardised complaints submission process and introducing a single portal/point of entry for all financial complaints.

29. Thank you