The Minister of Finance intends tabling the Financial Services Ombudschemes Bill, 2002 in Parliament during the third parliamentary term. The Bill is published in accordance with Rule 241 (c) of the Rules of the National Assembly.
Interested persons and institutions are invited to submit written representation on the bill to the Secretary to Parliament by no later than 29 April 2002.
All submissions must be addressed to:
The Secretary to Parliament
c/o Mr A Hermans
Committee Section
Parliament of the RSA
P.O. Box 15
CAPE TOWN
8000
You can contact Mr Hermans at:
Fax: (021) 462 2141
Tel: (021) 403 3776
Email: ahermans@parliament.gov.za
BILL
To provide for the recognition of voluntary ombudschemes; to lay down minimum requirements for such schemes; to empower the ombud for financial services 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
“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 Ombudschemes 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 financial institution
- 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;
- having wilfully or negligently rendered a financial service to the client, or committed to render such a service when it was obliged in law to have done so; or
- having treated the client unfairly;
“financial institution” means-
- a bank as defined in section l(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 1993);
- 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;
- a long-term insurer as defined in section 1 of the Long-term Insurance Act, 1998 (Act No. 52 of 1998);
- a short-term insurer as defined in section 1 of the Short-term Insurance Act, 1998 (Act No. 53 of 1998); or
- 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 :-
“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 the state as defined in section 239 of the Constitution;
“prescribed” means prescribed by rule;
“recognised scheme” means a voluntary ombudscheme which has been granted recognition under section 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 ombudscheme” means an arrangement or scheme established by financial institutions or 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 Ombudschemes Committee
Constitution of Committee
( 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 registrar office. Term of office of members of Committee
( 2 ) A person whose term of office as a member of the Committee has expired , is eligible reappointment.
Vacating of office by members of Committee
- on resigning as a member; or
- if the member is discharged by the board on the grounds of misbehaviour or
(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 incapacity.
( 2 ) The decisions of the Committee are valid if taken by a simple majority of members in office at the relevant time.
Remuneration of members of Committee
Functions of committee and registrar
- must consider and grant or refuse applications for the recognition of a voluntary ombudscheme;
- must monitor and supervise the compliance by recognised schemes with the requirements referred to in section 9;
- may issue guidelines to inform complainants about the jurisdictions of different ombuds and the procedures for the submission of a complaint;
- 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 ombudscheme
- 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 of the particular ombud;
- 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;
- the scheme must provide for minimum requirements relating to qualifications, competence, knowledge and experience with which the ombud must comply;
- 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 within a reasonable time;
- the proposed procedures of the scheme must enable the ombud-
- to resolve a complaint through mediation, conciliation, recommendation or determination;
- to act independently in resolving a complaint or in making a determination;
- to follow informal, fair and cost-effective procedures;
- where appropriate, to apply principles of equity in resolving a complaint through mediation, conciliation or recommendation;
- if necessary, to report relevant issues to the registrar or to a body representative of the relevant category of financial institutions;
- provision must be made for the effective enforcement of determinations of the ombud made in accordance with the law.
- the scheme must provide for ways in which the public can be made aware of ombud made in the existence of the scheme and how it functions;
- 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 (l), after the scheme has been afforded a reasonable opportunity to be heard.
Application for recognition of voluntary ombudscheme
(2) The applicant must-
- comply with the requirements referred to in section 9(1);
- agree to accept the authority of the Committee as provided for in this Act, including its right to monitor and supervise the compliance by the scheme with the requirements laid down for such scheme;
- submit its application in writing in the prescribed form and with the supporting documentation and a non-refundable fee determined by the board.
(3) An independent body referred to in section 9(l)(b) or a representative of the category of financial institutions concerned may appear before the Committee in order to submit the applicant’s application for recognition and to present its case in support of such recognition.
(4) The Committee must after consideration of an application-
- if satisfied that the applicant complies with the requirements of this Act, grant the application; or
- if not so satisfied, refuse the application and furnish the applicant with reasons
(5) If an application is granted, the Committee may impose such conditions and restrictions on the exercise of the powers of the scheme or the ombud of the scheme as may be necessary having regard to-
- the financial services sector in which the scheme will operate;
- the type of client served by the sector concerned; and
- any guidelines provided to the Committee by the board.
(6) The Committee may, at the request of the scheme or of its own accord after the scheme has been afforded a reasonable opportunity to be heard , review or amend the conditions and restrictions imposed in terms of subsection (5).
Suspension or withdrawal of recognition
(7) If an application has been granted, the Committee must issue to the applicant a written recognition with appropriate particulars, to operate a voluntary ombudscheme, and the recognition must be published by the registrar by notice in the Gazette.
- on application
- if the scheme has ceased to function;
- if the scheme no longer complies with the requirements of this Act.
(2) The registrar must publish a notice of a suspension or withdrawal of a recognition in the Gazette.
(3) A suspension or withdrawal of a recognition for the reasons contemplated in paragraphs (b) and (c) of subsection (1) may only be made after the scheme concerned has been afforded a reasonable opportunity to be heard.
Authority of Ombud for Financial Services Providers to entertain certain complaints
(2) The statutory ombud may deal with a complaint against a financial institution if-
- the financial institution does not form part of a category of financial institutions participating in a recognised scheme in terms of this Act;
- the financial institution could have but does not participate in a scheme recognised under this Act;
- the recognition of a scheme in which the financial institution participates, has been suspended or withdrawn in terms of section 11 (1);
- the financial institution participates in a recognised scheme, but the ombud concerned lacks jurisdiction, while the statutory ombud has jurisdiction to entertain such complaint;
- the ombud of a scheme with jurisdiction has determined that it would be more appropriate that the statutory ombud exercises jurisdiction over the complaint;
- the jurisdiction of the ombud of a scheme overlaps with the jurisdiction of the statutory ombud, and the statutory ombud has determined in terms of subsection (3) to exercise jurisdiction over the complaint.
(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 6 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 in order 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
(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
- 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;
- 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
Rules
- the functions of the Committee;
- the requirements for recognition of a voluntary ombudscheme;
- the form and content of the application referred to in section 10;
- 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
- service fees in respect of functions performed in terms of this Act;
- generally, any matter expedient or necessary to prescribe for the better achievement of the objectives of this Act;
(2) The board may make different rules for different categories of voluntary ombudschemes.
Short title and commencement
- 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.
- Primary Objects
The main objects of the Bill are, therefore, to provide for the statutory recognition of voluntary ombudschemes, whether presently 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.
- Salient Provisions of the Bill
- 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.
- Clause 2 provides for the establishment of the Financial Services Ombudschemes 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.
- Clause 8 sets out the functions of the Committee, which essentially are-
- to consider and grant or refuse applications for recognition of a voluntary ombudscheme;
- to supervise the compliance by schemes with the requirements laid down for them; and
- to receive and consider annual reports by the ombuds.
- Clause 9 lays down the minimum requirements for recognition of a voluntary ombudscheme. These include-
- majority support by those financial institutions in whose sector of industry the scheme will operate;
- independence with regard to the appointment of the ombud;
- specified minimum requirements for the ombud in relation to qualifications, competence and experience;
- sufficient financial and human resources;
- specific requirements with regard to the procedures under which the ombud will operate, especially that they should be informal, fair and cost effective;
- provision for the effective enforcement of determinations of the ombud.
- 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 either to grant or refuse the application, or, when granted, to impose conditions and restrictions on the scheme and its ombud.
- Clause 11 provides for suspension or withdrawal of an authorisation granted to a scheme in certain circumstances.
- 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 therein.
- 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, 2001.
- The statutory ombud will also deal with the situation where there is an overlap of jurisdiction of ombuds.
- 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.
- 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.
- Clause 15 of the Bill excludes the activities of the Pension Funds Adjudicator from the ambit of this Act.
- Clause 16 enables the Financial Services Board to issue rules on a number of aspects in order to supplement the provisions of the Bill.
- Clause 17 contains the usual provision for the commencement and short title of the Bill.
- Consultative Process
- The drafting of the Bill has been preceded by an extensive consultative process with the financial services industry and other role players such as the existing voluntary ombud offices and consumer bodies.
- After exposure on a limited basis, a further draft of the Bill was prepared and publicised for comment.
- After comments had been received and scrutinised, the final draft was prepared and submitted for Cabinet approval.
- Financial, Organisational and Personnel Implications
The Bill has no financial, organisational and personnel implications for the State, except that the statutory recognition of voluntary ombudschemes, all funded by industry, are likely to alleviate the burden of the courts.
- Constitutional Implications
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.
- 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.
- Parliamentary Procedure
In the opinion of the State Law Advisors 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.
PARTIES CONSULTED
ABSA Fund Managers Ltd
ABSA Trust Participation Bond
Actuarial Society of SA
African Harvest Management Company Ltd
Afrikaanse Handelsinstituut
Allan Gray Unit Trust Management Ltd
Anglo American Property Fund Managers Ltd
Arthur Andersen & Company
Association of Unit Trusts
Association for the Advancement of Black Accountants
Association of Banking Lawyers of SA
Association of Chartered Certified Accountants
Association of Corporate Treasurer of SA
Association of Bond Issuers of SA
Association of Participation Mortgage Scheme Managers in SA
Association of Retired Persons and Pensioners
Association of Trust Companies in SA
Association of Property Trust Management Companies
Association of Black Securities and Investment Professionals
B 0 E Unit Trust Management Company Ltd
Banking Council of SA
BDO Spencer Steward
Black Management Forum
Black Lawyers Association
BOE Investment Administrators
Boland Bank Beleggingsdiens Bpk
Bond Exchange of SA
Brait Management Company Limited
Business South Africa
Business Practices Committee: Department of Trade and Industry
CFL
Chartered Institute of Management Accountants
Commercial Union Unit Trust Management Company Ltd
Commission of Inquiry into the Affairs of the Masterbond Group
Community Growth Management Company Ltd
Consulting Actuaries Society of Southern Africa
Consumer Institute SA
Coronation Management Company Ltd
Corporate Lawyers Association of SA
COSATU
Cover Magazine
Deloitte & Touche
Department of Health
Department of Economic Affairs: North West
Department of Economic Affairs: Eastern Cape
Department of Economic Affairs: Mpumalanga
Department of Economic Affairs: Northern Province
Department of Economic Affairs: Free State
Department of Economic Affairs: Gauteng
ANNEXURE A
Department of Economic Affairs: KwaZulu-Natal
Department of Economic Affairs: Northern Cape
Department of Economic Affairs: Western Cape
Department of Finance Department Mercantile Law: University of Pretoria
Department of Economics: WITS
Department of Mercantile Law: UNISA
Dr C J de Swardt
Ernst & Young
Fairheads Bond Managers (Pty) Ltd
FEDSAL
Fedsure Unit Trust Management Company Ltd
Fedsure Participation Mortgage Bond Managers (Pty) Ltd
FEDUSA
Fidelity Bank Ltd
FIFSA First National Asset Management & Trust Co (Pty) Ltd
Fisher Hoffman Sitole
Fleming Martin Management Company Ltd
Franklin Templeton Management Company Limited
Free Market Foundation
Fund Managers Association of SA
General Council of the Bar of SA
Gobodo Associates
Graaffs’ Trust Ltd
Grove Property Fund Managers Ltd
Guard Bank Management Corporation Ltd
Institute of Retirement Funds of SA
Institute of Pension Consultants and Advisors
Institute of Financial Markets
Institute of Life and Pensions Advisors
Institute of Pension Consultants and Administrators
Institute of Bankers in SA
Institute of Loss Adjusters of SA
Insurance Brokers Council
Insurance and Financial Services
Insurance Law Society of SA
Insurance Institute of SA
Investec Guinness Flight Management
Johannesburg Stock Exchange
Kessel Feinstein
KMMT Brey & Co
KPMG Aiken & Peat
Law Society of SA
Lawyers for Human Rights
Leveton Boner Honvath
Linked Investment Services Providers’ Association
LOA
LUASA
M Cubed Capital Unit Trusts Management Company Ltd
Marriott Property Fund Managers Ltd
Marriott Property Services (Pty) Ltd
Marriott Unit Trust Management Company Limited
Masterbond Deelnemingsverbande Trust Bestuurders (Edms) Bpk
Melboard Property Fund Managers Ltd
Mercantile Participation Mortgage Bond Managers (Pty) Ltd
Metboard Ltd
Metropolitan Life Unit Trust Management Company Ltd
Moores Rowland
Mr Neil Gillman
MSGM Masuku & Jeena
National African Federated Chamber of Commerce and Industry
National NGO Coalition National Council of Trade Unions
National Consumer Forum
National Black Consumer Union
National Consumers Affairs Office
NBS Participation Bond Managers (Pty) Ltd
Nedcor Bank Management Company Limited
NEHAWU
Nexia Levitt Kirson
NIB Management Company Ltd
NU3 Property Fund Managers Ltd
NIB Private Asset Unit Trust Management Company Ltd
Nkonki Sizwe & Ntsaluba
Office for Public Enterprises
Office of the Auditor General
Old Mutual Unit Trust Managers Ltd
Owen Wiggins Trust Participation Managers (Pty) Ltd
PW Harvey & Co
Pagdens Incorporated
Pension Lawyers Association
Policy Board for Financial Services and Regulation
Prestasi Unit Trust Managers Ltd
Price Waterhouse Coopers
Prima Eiendomstrustbestuurders Bpk
Property Fund Managers Ltd
PSG Management Company Ltd
Public Property Syndication Association
Public Accountants and Auditors Board
Quantim Consultancy Group (Pty) Ltd
Regal Treasury Unit Trust Management Company Ltd
RMB Unit Trusts Ltd
SA Consumer Union
SA Institute of Chartered Secretaries and Administrators
SA Reinsurance Offices’ Association
SA Insurance Association
SA Risk and insurance Management Association
SA Society of Claims Administrators
SA Society of Medical Underwriters
SA Reinsurance Brokers Association
SA Futures Exchange
SA Property Owners’ Association
SA Law Commission
Sage Property Trust Managers Ltd
Sage Unit Trusts Ltd
Sanlam
Sanlamtrust-Bestuurders Bpk
S A R S
School of Management: University of Pretoria
Securities Regulation Panel
Select Committee on Public Accounts
Select Committee on Finance (National Council of Provinces)
Shareholders’ Association of SA
Society of Risk Managers (SA)
South African Chamber of Business
South African institute of Chartered Accountants
South African Insurance Brokers Association
Southern Unit Trusts Management Company Ltd
Stabilitas Deelnemingsverbandskema (Edms) Bpk
Standard Bank Fund Managers Ltd
Standard Bank Bond Investments Ltd
Standing Committee on Public Accounts
Supreme Participation Mortgage Managers (Pty) Ltd
Syfrets Participation Bond Managers Ltd
The Ombudsman for Banking
The Ombudsman for Long-term Insurance
The Ombudsman for Short-term Insurance
The Pension Funds Adjudicator
The Registrar of Medical Schemes
The Registrar of Banks
The Registrar of Companies
The Board of Executors
The Committee Clerk Portfolio Committee on Finance (National Assembly)
Trustee Board Limited
Zodwa Manase & Associates