Financial Services Ombud Schemes Bill, 2004

1. Financial Services Ombud Schemes Bill, 2004 PRESENTATION TO THE PORTFOLIO COMMITTEE ON FINANCE BY Baron Furstenburg, Financial Sector Policy Unit 18 August 2004 National Treasury, Republic of South Africa

2. OVERVIEW OF PRESENTATION • HISTORY OF THE BILL • CHARACTERISTICS OF AN OMBUD SCHEME • OBJECTIVES OF THE BILL • OPERATIONAL ISSUES • OVERVIEW OF IMPORTANT SECTIONS OF THE BILL National Treasury, Republic of South Africa

3. HISTORY OF THE BILL • Cabinet approved of FSOS Bill originally in 2001 • Bill postponed to 2002 due to heavy Parliamentary programme • After further consultation a revised Bill was submitted to Parliament in 2003 • June 2003, Minister of Finance withdrew Bill, in order to address the following issues:  independence of the Ombuds  demarcation of jurisdiction between statutory and voluntary ombuds  ensuring adequate Ministerial oversight National Treasury, Republic of South Africa

4. CHARACTERISTICS OF AN OMBUD SCHEME • WHAT IS AN OMBUD SCHEME?  dispute/complaint resolution mechanism  an arrangement whereby subscribing members voluntarily agree to be bound by the decisions of an ombud.  disputes are in first instance usually resolved by mediation. Only if this fails does the ombud make a determination (on the basis of equity). • In terms of the Bill, the consumer can lodge a complaint in cases where the financial institution:  contravenes or fails to comply with the client agreement  negligently supplies a financial service or product  treats the client unreasonably or inequitably  maladministers the agreement with client National Treasury, Republic of South Africa

5. CHARACTERISTICS OF AN OMBUD SCHEME • WHY HAVE AN OMBUD SCHEME?  more cost effective than seeking redress in a court of law.  free to the consumer.  decisions are binding on the subscribing member but not the consumer.  easy access.  consumers right of redress to a court of law unaffected. National Treasury, Republic of South Africa

6. CHARACTERISTICS OF AN OMBUD SCHEME • Existing South African examples of financial service ombud schemes: •  Banking ombudsman, long-term insurance ombud, short-term insurance ombud. •  Pension fund adjudicator, FAIS Ombud are created by statute and therefore fall OUTSIDE the ambit of this Bill. (They are not voluntary, industry established bodies). • No standard, internationally recognised ombud scheme model. The UK, Ireland, Australia and Canada all have some form of ombud scheme arrangements. National Treasury, Republic of South Africa

7. PRIMARY OBJECTIVES OF THE BILL • Provide recognition of financial services ombud schemes • Set-out minimum requirements for ombud schemes • Develop and promote best practices for complaint resolution • Promote consumer education with regard to ombud schemes National Treasury, Republic of South Africa

8. OPERATIONAL ISSUES HOW WILL IT WORK? • The Bill establishes an independent Council which will function as a committee of the Financial Services Board (FSB). • The Council’s budget will therefore be controlled by the FSB. • The Council considers applications for recognition of an ombud scheme, and must grant recognition if the requirements specified in the Bill are fulfilled. National Treasury, Republic of South Africa

9. IMPORTANT SECTIONS OF THE BILL SECTIONS 2,3 & 4: ESTABLISHMENT AND COMPOSITION OF THE FSOS COUNCIL • Council consists of a minimum of five members (see section 5), including a Chairperson and Deputy Chairperson, who are appointed by the Minister of Finance. • The majority of members must not be engaged in the business of a financial institution and/or the supply of a financial service to a client. The Registrar is an ex officio member of the Council. These provisions fortify the notion that the Council should be independent. • Each member holds office for three years or such shorter period as the Minister may determine. Members are allowed to be re-appointed. National Treasury, Republic of South Africa

10. IMPORTANT SECTIONS OF THE BILL SECTION 5: VACATING OF OFFICE • Usual exclusions from office apply (eg. If member is an unrehabilitated insolvent). • Section 5(f)(1) and 5(2) try to ensure the continued independence of the Council:  if a member when appointed was not engaged in the business of a financial institution, or supply of a financial service or product, but subsequently becomes so engaged, he/she must inform the Minister, and it is possible he/she may be removed from office. SECTION 7: REMUNERATION • Members of the Council are paid remuneration and allowances determined by the FSB, including all reasonable expenses incurred in the execution of their duties. National Treasury, Republic of South Africa

11. IMPORTANT SECTIONS OF THE BILL SECTION 8: FUNCTIONS OF THE COUNCIL • The Council must:  Consider, grant or refuse an application for recognition of a scheme.  Monitor compliance of recognised schemes with the Bill.  Promote the education of clients with respect to the various dispute resolution forums.  Develop and promote best practices for dispute resolution by recognised schemes.  Ensure that in the execution of its duties, the independence and impartiality of the ombud is not affected.  Annually submit a report on its affairs to the FSB and the Minister of Finance. National Treasury, Republic of South Africa

12. IMPORTANT SECTIONS OF THE BILL SECTION 10: REQUIREMENTS FOR RECOGNITION • In order to be recognised, a scheme must comply with the following requirements: • A majority of financial institutions in a specific category of financial institutions must participate in the scheme. • A body not controlled by scheme participants must appoint the ombud. • The scheme must provide certain minimum qualification requirements with which the ombud should comply. • The scheme must have sufficient resources, funded by scheme participants, to allow the ombud to operate efficiently. National Treasury, Republic of South Africa

13. IMPORTANT SECTIONS OF THE BILL SECTION 10: REQUIREMENTS FOR RECOGNITION (CONTINUED)  The procedures of the scheme must enable the ombud to: (a) resolve complaints by mediation, conciliation, recommendation or determination. (b) act independently (c) follow informal, fair and cost effective procedures (d) where appropriate, to apply principles of equity in resolving a complaint. • Determination of the decisions of the ombud must be enforceable.  A scheme must provide ways in which the public can be made aware of its existence and how it functions. National Treasury, Republic of South Africa

14. IMPORTANT SECTIONS OF THE BILL SECTION 11: APPLICATION FOR RECOGNITION • A scheme will submit its application in the prescribed manner to the Council. • Representatives of the scheme may appear before the Council in order to support its application & present its case. • The Council is obliged to grant recognition to the scheme if satisfied that the scheme complies with all the requirements for recognition. • If the Council is NOT satisfied, it MUST furnish the scheme with reasons for refusal. • Once recognised a scheme may not change its constitution, provisions under which it operates, and the terms of reference of its ombud, unless the Council grants approval. National Treasury, Republic of South Africa

15. IMPORTANT SECTIONS OF THE BILL SECTION 12: SUSPENSION OR WITHDRAWAL OF RECOGNITION • The Council may at any time suspend or withdraw recognition:  on application by the scheme  if the scheme has ceased to function • if the scheme no longer complies with the provisions of the Bill. • The Registrar must publish a notice of suspension or withdrawal in the Gazette. • The scheme may appeal the decision of the Council. In such a case, the appeal will be heard by the Board of Appeal, established by Section 26 of the Financial Services Board Act. National Treasury, Republic of South Africa

16. IMPORTANT SECTIONS OF THE BILL SECTION 13: JURISDICTION • The operation of any scheme under this Bill does not affect the authority and/or activities of the Pension Funds Adjudicator or the FAIS ombud. • No ombud of a scheme has authority to resolve a complaint, or make a determination, regarding a matter in which the Adjudicator or FAIS Ombud in terms of legislation, has jurisdiction – unless they have declined to settle the matter. • In the event of uncertainty over who has jurisdiction, the Adjudicator, FAIS ombud and scheme ombud must agree who has jurisdiction over the complaint. • If agreement cannot be reached then the FAIS ombud must determine who will exercise jurisdiction. National Treasury, Republic of South Africa

17. IMPORTANT SECTIONS OF THE BILL SECTION 14: AUTHORITY OF STATUTORY (FAIS) OMBUD • From the consumer’s point of view, there may be gaps in such a dispute resolution system. • Therefore, the statutory ombud must also deal with a complaint if:  The financial institution does not participate in a recognised scheme.  Recognition of a scheme has been withdrawn or suspended. • The statutory ombud must deal with complaints in the manner stipulated in Part 1 of Chapter 6 of the Financial Advisory and Intermediary Services Act. National Treasury, Republic of South Africa

18. IMPORTANT SECTIONS OF THE BILL SECTION 16: REPORT OF THE OMBUD • The ombud of a recognised scheme must:  annually submit a report to the Council on the affairs of the ombud office over the financial year.  provide the Council with a report or information which may be necessary to ensure compliance by the scheme. • The Council must at the request of the FSB or Minister, submit the reports and information described above, to the FSB or Minister, as the case may be. National Treasury, Republic of South Africa

19. IMPORTANT SECTIONS OF THE BILL SECTION 18: PROHIBITION AND EXEMPTIONS • Any scheme operating prior to the promulgation of the Bill has 18 months from the date of promulgation, to obtain recognition. The scheme will be permitted in the interim period, to function as before. • The Minister may, after consultation with the FSB and the Council, exempt any financial institution, or category of financial institutions, from one or more provisions of the Bill. • The Minister may attach conditions to any such exemption. National Treasury, Republic of South Africa

20. QUESTIONS? National Treasury, Republic of South Africa