FINANCIAL SERVICES OMBUD SCHEMES BILL

BILL

To provide for the recognition of voluntary ombud schemes; to lay down minimum requirements for suchschemes;toempowertheombud for financialservices providers to act as a statutory ombud in certain cases; and to provide for matters incidental thereto.

BE IT ENACTED by the Parliament of the Republic of South Africa, as follows:-

Definitions

1. In this Act, unless the context otherwise indicates-

"board" means the Financial Services Board established by section 2 of the Financial Services Board Act, 1990 (Act No. 97 of 1990);

"client" means any person who uses or used the financial service or product of a financial institution or is the successor in title of such person or the beneficiary of such service or product;

"Committee" means the Financial Services Ombud schemes Committee established by section 2;

"complaint" means a complaint of a client relating to any agreement with, or the service or product of, a financial institution, and in which it is alleged that the client has suffered or is likely to suffer financial prejudice or damage as a result of the f inancial

1. having contravened or failed to comply with a provision of any agreement or the law or of a code of conduct subscribed to by the financial institution;
2. having wilfully or negligently rendered a financial service to the client, or omitted to render such a service when it was obliged in law to have done so; or
3. having treated the client unfairly;

"financial institution" means-

1. a bank as defined in section I( 1) of the Banks Act, 1990 (Act No. 94 of 1990), or a mutual bank as defined in section 1( 1) of the Mutual Banks Act, 1993 (Act No. 124 of 1 9 9 3 ); 2 5
2. any collective investment scheme as defined in section 1 of the Collective Investment Schemes Control Act, 2002, or a manager, trustee or custodian of such a scheme;
3. a long-term insurer as defined in section 1 of the Long-term Insurance Act, 1 9 9 8 (A c t N o . 5 2 of 1998);
4. a short-term insurer as defined in section 1 of the Short-term Insurance Act, 1998 (Act No. 53 of 1998); or
5. any other institution or body declared to be a financial institution for the purposes of this Act by the Minister by notice in the Gazette, after consultation with the board

"Minister" means the Minister of Finance;

"ombud" means a person who is empowered in terms of this Act to deal with a complaint;

"participant", in relation to a scheme, means a financial institution which takes part in the scheme and its funding, and submits to the authority of the particular ombud; and

"participate" and "participating" have a corresponding meaning;

"person" includes an organ of state as defined in section 239 of the Constitution;

"prescribed" means prescribed by rule;

"recognised scheme" means a voluntary ombud scheme which has been granted recognition under 10 of this Act ;

"registrar" means the executive officer appointed as such in terms of section 13 of the Financial Services Board Act, 1990 ( Act No. 97 of 1990);

"rule" means a rule made under section 16;

"this Act" includes any rule, determination or request made, or requirement, condition or restriction imposed, by the Committee or by the board, under this Act;

"voluntary ombud scheme" means an arrangement or scheme established by financial institutions or a category of financial institutions to resolve disputes between clients and financial institutions which voluntarily participate in such arrangement or scheme, and "scheme" has a corresponding meaning.

Establishment of Financial Services Ombud Schemes Committee

2. There is hereby established a Committee of the board to be known as the Financial Services Ombud Schemes Committee.

Constitution of Committee

3. (1) The Committee consists of a chairperson designated by the board, and other members, including persons representative of financial institutions and clients affected by this Act, appointed by the board.

(2) If the chairperson is absent or is for any reason unable to act as chairperson, any other member of the Committee elected by members may act as chairperson.

(3) The registrar is a member of the Committee by virtue of the office of the registrar.

Term of office of members of Committee

4. (1) A member of the Committee holds office for such period as the board may determine at the time of the member’s appointment.

(2) A person whose term of office as a member of the Committee has expired, is eligible for reappointment.

Vacating of office by members of Committee

5. (1) A member of the Committee must vacate office-

1. on resigning as a member; or
2. if the member is discharged by the board on the grounds of misbehaviour or incapacity.

(2) If a member vacates office as a result of any of the grounds contemplated in subsection (l), the Committee may continue its work as long as not fewer than three members are in office.

Meetings and decisions of Committee

6. (1) The Committee may meet or otherwise arrange for the performance of its fucntions and may regulate its meetings as it deems fit.

(2) The decisions of the Committee are valid if taken by a simple majority of members functions and may regulate its meetings as in office at the relevant time.

Remuneration of members of Committee

7. A member of the Committee who is not in the full-time employment of the State or the board is paid the remuneration and allowances determined by the board as well as any expenses incurred in the performance of the functions of the Committee.

Functions of Committee and registrar

8. (1) The Committee-

1. must consider and grant or refuse applications for the recognition of a voluntary ombud scheme;
2. must monitor and supervise the compliance by recognised schemes with the requirements referred to in section 9;
3. may issue guidelines to inform complainants about the jurisdiction of different ombuds and the procedures for the submission of a complaint;
4. must perform such other functions as the board may direct in order to achieve the objects of this Act.

(2) The registrar is responsible for the administrative work incidental to the performance of the functions of the Committee.

(3) The expenditure connected with the functions of the Committee is paid out of the funds of the board, and the approval of the board is required for all expenditure proposed to be incurred , or actually incurred, by the Committee.

(4) For purposes of funding the expenditure of the Committee in rendering any service to a recognised scheme, the board may charge a service fee in accordance with a tariff published by the board from time to time in the Gazette.

Requirements for recognition of voluntary ombud scheme

9. (1) In order to qualify for recognition in terms of section 10, a voluntary ombud scheme must comply with the following requirements:

1. A significant majority of financial institutions, based on asset value or gross income (as the Committee may deem appropriate), in the particular category or categories of financial institutions must participate in the scheme and agree to submit to the authority of the particular ombud;
2. an independent body which is not controlled by participants in the scheme and to which the ombud is accountable, must appoint the ombud, settle the remuneration and monitor the performance and independence of the ombud;
3. the scheme must provide for minimum requirements relating to qualifications, competence, knowledge and experience with which the ombud must comply;
4. the scheme must have sufficient human, financial and operational resources, funded by the participants in the scheme, to enable the ombud to function efficiently and timeously;
5. the proposed procedures of the scheme must enable the ombud-

1. to resolve a complaint through mediation, conciliation, recommendation or determination;
2. to act independently in resolving a complaint or in making a determination;
3. to follow informal, fair and cost-effective procedures;
4. where appropriate, to apply principles of equity in resolving a complaint  through mediation, conciliation or recommendation;
5. if necessary, to report relevant issues to the registrar or to a body representative of the relevant category of financial institutions;

6. provision must be made for the effective enforcement of determinations of the ombudmade in accordance with the law;
7. the scheme must provide for ways in which the public can be made aware of the existence of the scheme and how it functions;
8. such other requirements as the board may stipulate, after consultation with the Committee.

(2) Nothing contained in subsection (1) precludes a scheme from providing that its participants are bound by other rules not in conflict with the provisions of subsection (1).

(3) A recognition once granted to a scheme does not preclude the Committee from imposing additional requirements on the scheme based on the requirements set out in subsection (1), after the scheme has been afforded a reasonable opportunity to be heard.

Applicationforrecognition of voluntaryombudscheme

10. (1) A scheme may apply in the prescribed manner to the Committee for recognition as a voluntary ombud scheme.

(2) The applicant must-

(3) The statutory ombud, after consulting other ombuds who may be involved, must determine which ombud, or ombuds jointly, may exercise jurisdiction over a specific complaint if the jurisdiction of different ombuds overlaps in respect of such complaint.

(4) The statutory ombud must deal with complaints entertained by the statutory ombud in terms of this section, in the manner and in accordance with the procedures provided for in Part 1 of Chapter VI of the Financial Advisory and Intermediary Services Act, 2002, the provisions of which apply, with the necessary changes, to such complaints.

(5 ) The statutory ombud who deals with a complaint in terms of this section, may before the end of the proceedings determine a fee payable by the financial institution concerned to cover the costs of dealing with each complaint officially received as such, in accordance with guidelines set by the Committee and after entertaining representations from the financial institution on the amount of the fee.

(6) The determination of a fee in terms of subsection (5) has the effect of a civil judgment given by a court in favour of the board for a liquid debt and the board may recover the fee from the financial institution concerned and the amount recovered becomes part of the funds of the board.

Prescription and saving of rights

13. (1) Official receipt of a complaint by an ombud suspends any applicable contractual time barring terms or the running of prescription in terms of the Prescription Act, 1969 (Act No 68 of 1969), for the period from such receipt until the complaint has either been withdrawn by the complainant concerned or determined by the ombud.

(2) No provision of this Act must be construed as affecting any right of a client or other affected person to seek appropriate legal redress by virtue of common law or other statutory law, before or after the consideration of a complaint by an ombud.

Report of ombud

14. (1) The ombud of a recognised ombud scheme must-

1. within six months after the end of every financial year of the scheme, submit to the Committee, in the form and with the content required by the Committee, a report on the affairs and functions of the office of the ombud during the financial year in question;
2. at the request of the Committee at any time furnish the Committee within a reasonable time with such information or report regarding the operation of the scheme and other matters relating to the scheme as may be necessary to ensure compliance by the scheme with the provisions of this Act.

(2) The Committee must submit reports and information received from an ombud to the board with such comment or recommendation as the Committee deems necessary.

Exclusion of Pension Funds Adjudicator

15. Neither this Act nor the operation of a recognised scheme affects the activities of the office of the Pension Funds Adjudicator established by section 30B of the Pension Funds Act, 1956 (Act No 24 of 1956).

Rules

16. (1) The board may, after consultation with the Committee and by notice in the Gazette, make rules relating to-

1. the functions of  the Committee;
2. the requirements for recognition of a voluntary ombudscheme;
3. the form and content of the application referred to in section 10;
4. the proceedings and jurisdiction of the statutory ombud referred to in section 12(1) regarding the nature of the complaint or the extent of the amount involved in complaint;
5. service fees in respect of functions performed in terms of this Act;
6. generally, any matter expedient or necessary to prescribe for the better

(2) The board may make different rules for different categories of recognised ombud achievement of the objectives of this Act.schemes.

Short title and commencement

17. This Act is called the Financial Services Ombud Schemes Act, 2002, and comes into operation on a date fixed by the President by proclamation in the Gazette.

MEMORANDUM ON THE OBJECTS OF THE FINANCIAL SERVICES OMBUD SCHEMES BILL, 2002

1. Background

The Bill is the result of a consultative process between the Financial Services Board, on the one hand, and a wide spectrum of financial services industry representatives and other interested parties, such as the industry ombuds, on the other hand. The gravamen of opinion gained during this process was that there was room for the statutory recognition of voluntary ombud arrangements that exist in the industry, provided they were sufficiently supported by industry players and complied with certain minimum criteria. In addition it was thought that client complaints directed at a financial institution which did not participate in an ombud arrangement, should be dealt with by a statutory ombud to be created in a new Act.

2. Primary objects

The main objects of the Bill are, therefore, to provide for the statutory recognition of voluntary ombud schemes, whether currently in existence or not; to lay down minimum requirements for such schemes; to empower the ombud for financial services providers to act as a statutory ombud; to establish a Committee which will oversee the application of the Act; and to provide for matters incidental thereto.

3. Salient provisions of Bill

1. Clause 1, which is the definition clause, defines the principal words and expressions used in the Bill. It appears from this clause that banks and mutual banks, collective investment schemes and management companies, and long-term and short-term insurers are to be the financial institutions covered by the provisions of the Bill. Any other institution or body may also be declared a financial institution for purposes of the Act.
2. Clause 2 provides for the establishment of the Financial Services Ombud Schemes Committee, a body representative of consumers, industry and others, which will function as a committee of the Financial Services Board and be responsible for the application of the Act. The Executive Officer of the Financial Services Board will serve as a member of the Committee and the administrative work of the Committee will be the responsibility of the Financial Services Board which will also fund the activities of the Committee, with the right to raise fees on participating schemes.
3. Clause 8 sets out the functions of the Committee, which essentially are-

1. to consider and grant or refuse applications for recognition of a voluntary ombudscheme;
2. to supervise the compliance by schemes with the requirements laid down for them; and
3. to receive and consider annual reports by the ombuds.

4. Clause 9 lays down the minimum requirements for recognition of a voluntary ombudscheme.

These include-

1. majority support by those financial institutions in whose sector of industry the scheme will operate;
2. independence with regard to the appointment of the ombud;
3. specified minimum requirements for the ombud in relation to qualifications, competence and experience;
4. sufficient financial and human resources;
5. specific requirements with regard to the procedures under which the ombud will operate, especially that they should be informal, fair and cost-effective;
6. provision for the effective enforcement of determinations of the ombud.

5. Clause 10 sets out the procedures to be followed when application for recognition of a voluntary ombudscheme is made. The Committee has to be satisfied in the respects laid down by the Act and will be entitled to either grant or refuse the application, or, when granted, to impose conditions and restrictions on the scheme and its ombud.

6. Clause 11 provides for suspension or withdrawal of an authorisation granted to a scheme in certain circumstances.

1. Clause 12 empowers the ombud for financial services providers to entertain client complaints if those complaints cannot be accommodated by any of the ombuds in the voluntary arrangements. That would for example be the case if the financial institution complained against is from a sector which has not seen fit to form a voluntary ombud arrangement, or in the instance where there is such an arrangement, but the financial institution in question has elected not to participate in it.
2. The procedures adopted for the resolution of complaints referred to the statutory ombud will be the same as those provided for in the Financial Advisory and Intermediary Services Act, 2002.
3. The statutory ombud will also deal with the situation where there is an overlap of jurisdiction of ombuds.

7. Clause 13 provides for the suspension of barring clauses or prescription while a complaint is in the hands of an ombud and further makes clear that a complainant’s rights to institute action through the courts are not affected.
8. Clause 14 requires all ombuds of voluntary schemes to submit annual reports to the Committee and further to furnish any information which the Committee may require from time to time. The Committee in turn must submit these reports to the Financial Services Board, with such recommendations as it deems necessary.
9. Clause 15 of the Bill excludes the activities of the Pension Funds Adjudicator from the ambit of this Act.
10. Clause 16 enables the Financial Services Board to issue rules on a number of aspects in order to supplement the provisions of the Bill.
11. Clause 17 contains the usual provision for the commencement and short title of the Bill.

4. Consultative process

1. The drafting of the Bill has been preceded by an extensive consultative process with the financial services industry and other roleplayers such as the existing voluntary ombud offices and consumer bodies.
2. After exposure on a limited basis, a further draft of the Bill was prepared and publicised for comment.
3. After comments had been received and scrutinised, the final draft was prepared and submitted for Cabinet approval.

5. Financial, organisational and personnel implications

The Bill has no financial, organisational and personnel implications for the State, except that the statutory recognition of voluntary ombud schemes, all funded by industry, is likely to alleviate the burden of the courts.

6. Constitutionalimplications

Client complaints lodged with an ombud are submitted on a voluntary basis and any client may still elect to take recourse to law through the ordinary process of court, rather than following the ombud route. In these circumstances the provisions of the Bill are not seen to be in contravention of any constitutional right.

7. Communication implications

The Bill does not have communication implications other than the commencement of the Bill as an Act of Parliament being published in the Gazette.

8. Parliamentary procedure

In the opinion of the State Law Advisers and the Financial Services Board this Bill should be dealt with in terms of section 75 of the Constitution. None of the procedures laid down in sections 74 and 76 of the Constitution are applicable.

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